- Forex Trading

23 Aug 2022

hammer pattern

The pattern is recommended to be bullish or confirmed by the following bullish candlestick. A Buy Stop order should be placed at the opening price of the next candlestick after the confirmation. A protective Stop Loss should be placed below the Hammer’s low or at the opening or closing price of the candle’s real body. The Hammer candlestick pattern is a technical analysis tool used by traders to identify potential reversals in price trends.

risk management

The color of a Hammer candlestick may be either bullish or bearish. 77.93% of retail investor accounts lose money when trading ᏟᖴᎠs with this provider. At a minimum, I always want a hammer candle to be as big as the recent candles on the chart if I am going to use it as an entry or exit signal in my trading.

Hammer candlestick patterns are one of the most used patterns in technical analysis. Not only in crypto but also in stocks, indices, bonds, and forex trading. Hammer candles can help price action traders spot potential reversals after bullish or bearish trends. Depending on the context and timeframe, these candle patterns may suggest a bullish reversal at the end of a downtrend or a bearish reversal after an uptrend.

After the Inverted Hammer forms, it is important to wait for confirmation before taking any action. Some signs of confirmation would be if the next candlestick closed higher than the Inverted Hammer candlestick or if there was heavy volume during the Inverted Hammer formation. Additionally, if the security has been in a downtrend for a while and forms multiple hammers, it is less likely to result in a significant rally. In this case, it is best to wait for confirmation before taking a position.


If you do see both of these things, then it is a strong signal that the price is going to make a reversal. These are so easy to identify, you’ll be able to see them all over your charts after reading this article. However, it is commonly part of a swing formation that also enhances its strength of trade. With this in mind, you can understand the new flow of market orders from the buy-side and it would suggest that the buyers are looking to take control. This is a great way to identify whether a trend is about to change and what the next trend might be. Hammer candles that appear within a third of the yearly low perform best — page 351.

When you see a hammer candlestick, look at the price action context to help you read the significance of the candle. With practice, you can find superior entries with excellent profit potential. To better understand hammer candlesticks, let’s look at how price movement creates one.

How do candlesticks work?

The shadow of the candlestick should be at least twice as long as the body. The longer the shadow, the more reversal potential there is. The location of the bullish hammer within the price chart will help to determine the significance of the pattern. An entry trigger is a repeatable pattern that gets you into a trade. This could be a candlestick pattern, a moving average crossover, or even just a breakout from a previous trading range.

moving average

This suggests that the previous bullish momentum may pause or reverse. For practical purposes, I treat hammers and dojis the same way in my trading. When I refer to hammers in this article, I’m also including the above two types of doji candlesticks. A hammer is considered more bullish, especially green, as it means “feeling the bottom with your foot” in Japanese.

Golden Hammer

These appear after bullish trends and indicate a potential reversal to the downside. The bullish hammer candles include the hammer and inverted hammer, which appear after a downtrend. The bearish variations of hammer candles include the hanging man and the shooting star, which occur after an uptrend. A stop-loss should be placed below the most recent swing low. Again, you can either wait for the confirmation candle, or open the trade immediately after the inverted hammer is formed. The profit-taking order should be placed at the previous support and dependent on your risk tolerance.


This kind of analysis can be profitable, especially in fast markets like the crypto market, which constantly changes and makes it hard for traders to decide when to enter the market. Traders often use moving averages to understand trends and their strengths. Especially when using intraday strategies, one of the most popular moving averages is the EMA because it can react to price changes faster.

Hammer Candlestick Pattern: Strategy Guide for Day Traders

Following the formation of a hammer candlestick, many bullish traders may enter the market, whereas traders holding short-sell positions may look to close out their positions. Although the hammer candlestick pattern is a useful tool that helps traders spot potential trend reversals, these patterns alone aren’t necessarily a buy or sell signal. Similar to other trading strategies, hammer candles are more useful when combined with other analysis tools and technical indicators. How to trade the hammer candlestick pattern As stated earlier, a hammer is a bullish reversal pattern. It occurs at the end of a downtrend when the bears start losing their dominance. In the chart below, we see a GBP/USD daily chart where the price action moves lower up to the point where it prints a fresh short term low.

  • Experienced traders like to trade the Hammer pattern in an uptrend, where it can indicate the end of a pullback, rather than using it to anticipate the reversal of a full-blown downtrend.
  • The hammer and the inverted hammer candlestick patterns are among the most popular trading formations.
  • After initiating the trade, the stock did not move up; it stayed nearly flat and cracked down eventually.
  • Fortunately, the buyers had eaten enough of their Wheaties for breakfast and still managed to close the session near the open.

Even a single candlestick can tell a lot about the price changes. This article will introduce you to one of the most famous single-candlestick patterns – a hammer candlestick pattern. To identify the Hammer candlestick pattern, a trader needs to open the trading platform and find it on the chart.

Inverted Hammer Bullish

It looks just like a regular inverted hammer, but it indicates a potential bearish reversal rather than a bullish one. In other words, shooting stars candlesticks are like inverted hammers that occur after an uptrend. They are formed when the opening price is above the closing price, and the wick suggests that the upward market movement might be coming to an end.

What Is a Hammer Candlestick?

Confirmation came on the next candle, which gapped higher and then saw the price get bid up to a close well above the closing price of the hammer. If you think that the signal is not strong enough and the downtrend will continue, you can ‘sell’ . In-house research programs that develop proof-of-concept prototypes are effective for testing the feasibility of incorporating less risky open technologies into a development effort. The technical storage or access that is used exclusively for anonymous statistical purposes.

The closing price may be slightly above or below the opening price, although the close should be near the open, meaning that the candlestick’s real body remains small. Hammers also don’t provide a price target, so figuring what the reward potential for a hammer trade is can be difficult. Exits need to be based on other types of candlestick patterns or analysis.

By the time of market close, buyers absorb selling pressure and push the market price near the opening price. The hammer candlestick pattern is a bullish candlestick that is found at a swing low and can indicate a reversal back higher. The above process is a simple foundation on how to trade the hammer candlestick formation, go give it a try on a demo account and hunt down those hammer candlestick formations.

Also unique to Bar, Flipcharts allow you to scroll through all the symbols on the table in a chart view. While viewing Flipcharts, you can apply a custom chart template, further customizing the way you can analyze the symbols. To be included in a Candlestick Pattern list, the stock must have traded today, with a current price between $2 and $10,000 and with a 20-day average volume greater than 10,000. Alternatively, you can use a detailed combination of candlesticks, channels, and volatility.

On the other hand, an corporate career development networking is exactly what the name itself suggests i.e. a hammer turned upside down. A long shadow shoots higher, while the close, open, and low are all registered near the same level. Join thousands of traders who choose a mobile-first broker for trading the markets.



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