The Hammer is a single candlestick pattern that forms at the end of an ongoing downtrend, and from there it signals a bullish reversal.
In technical analysis, Hammer Candle is one such candlestick which if understood and traded correctly can give a very good profit.
What is a hammer candle
In the technical analysis of the stock market, a hammer candle is a small candle with a small (real body) and a (lower shadow) that is at least twice or more long than the real body. Only then will the candle be considered a perfect hammer.
The psychology of the formation of a small body and long lower shadow of a hammer candle is that during the initial period of the formation of the candle, the sellers continuously sold more, due to which the price fell as soon as the candle opened, but at that point the buyers felt that the price had already fallen a lot, and now it could go up.
Color has no significance in hammer candles but green candles are considered better than red ones.
There is no upper shadow (uppershadow/wick) in this candlestick chart pattern.
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What is the right way to take trades in hammer candlesticks
First of all, confirm whether the market is already in a downtrend or not in the stock you are looking at. In this, the market makes a new low every time and breaks it and goes down further.
Now you have to continuously observe the chart that whenever the hammer candlestick is formed, at that time also the market will break the previous low level and create a new uptrend.
As soon as the hammer candlestick is formed, you should not take a direct trade in it in a hurry. First you have to confirm whether the market is really going to reverse from here or not.
If the next candle after the hammer candle passes above the high of the hammer, it is considered a confirmation of your trade.
You can make your entry from here by placing a stop loss at the lower level of the hammer candle, and you can earn your profit by trailing the stop loss.
What is the meaning of hammer Candlestick
As its name suggests, it is called hammer candlestick because it looks like a hammer.
How to identify Hammer candlestick on the chart
This is a single candlestick pattern, and it is formed when the lower shadow of a candlestick at the bottom of a down trend is twice or more than its real body, the larger the lower shadow is than the real body the better the confirmation is considered.
One thing to keep in mind is that Hammer is a reversal candlestick pattern, for its formation the previous market condition should always be in a down trend.
If you are keeping an eye on a stock which is in a downtrend for the past several days, you can wait for the hammer candlestick pattern to form there.
It should be remembered that hammer candlestick is formed only at the end of a continuous downtrend; apart from this, if a hammer candlestick is formed in an uptrend or sideways market, then it has no significance.
What is a hammer candle Conclusion
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