The Hammer Candlestick Pattern
The Hammer candlestick pattern a common candlestick pattern that is frequently used in technical analysis. It is composed of a single candlestick and represents a bullish reversal in the price of a stock.
In this article you will learn:
- What is a Hammer candlestick pattern
- How to identify and interpret a Hammer candlestick pattern
- Trading techniques after confirming a Hammer candlestick pattern
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What is a Hammer candlestick pattern?
The Hammer is a candlestick pattern that is composed of a single candlestick and indicates a bullish reversal in the price of a stock. It is similar to the Hanging Man which occurs at the top of an uptrend.
The Hammer represents a reversal of high buying pressure in the middle of a trading session. At market open, sellers push the price of the stock down to the low of the day. At this point, buyers step in and start pushing the price of the stock higher, creating the long lower wick.
How to Identify a Hammer Candlestick Pattern
The Hammer candlestick should contain a long lower wick, typically 2-3 times the size of the body. The longer the lower wick, the stronger the buying signal. It is also important to check volume since low volume could lead to a false breakout.
Trading Techniques for the Hammer Candlestick Pattern
It is recommended to wait one trading day to confirm the Hammer pattern. If the following day is bullish, this can indicate a bullish entry point. However, if the following day is bearish then you should be cautious entering a bullish position since the pattern may have failed.