Hammer candle is a type of Japanese candle that often signals a trend reversal. This is a bullish hammer reversal candlestick pattern in the forex market. They are formed when the opening price and closing price are in equal proportions. Let’s join Forex Trading to learn more about how to use this candlestick pattern.
Detailed analysis of the hammer candle pattern in Forex
The Hammer candlestick chart is a chart type that helps investors identify future reversal trends.
What is the basic concept of a hammer candle?
The hammer reversal candle is also known as the hammer candle. This is an extremely popular Japanese candlestick pattern on the market. They represent a strong market reversal once a bottom is established. Hammer candlesticks will often appear at the end of downtrends on the chart.
This shows that sellers seem to have control of the market and now is the time to push prices down. However, this does not confirm that the buyer has lost control. Currently, the market is only growing. They predict that the downtrend will gradually weaken and may soon recover.
Analyze Hammer candlestick structure when trading forex
Looking at the structure of the candlestick, investors are likely to confuse it with the Hanging man candlestick in the opposite version. However, the hammer candle has a rather small and short body, but the shadow below the base is very long. Their length is 2 times the length of the candle’s body.
The candle is green when it grows and red when it subsides. The bullish candle in this pattern has a stronger reversal signal. Usually, there are at least 2-3 declines before the hammer candlestick pattern appears. However, a clear and long-term downtrend before candlestick formation is still the most important requirement.
See more: Read candlestick charts: Basic & advanced material
Hammer candlestick chart types in technical analysis
Currently, there are two popular hammer candlestick patterns in the investment market: the Bearish Hammer hammer candlestick and the Bullish Hammer hammer candlestick.
Bullish Hammer candlestick in technical analysis
Hammer candle Bullish is a strong reversal candlestick pattern. The hammer reversal candlestick is the only candlestick that investors find on the price chart. They represent bullish reversals in trend. It differs from other candlestick patterns in that it stands alone within an established downtrend.
Bullish Hammer is often confused with Hanging Man candlestick. However, each candle has its own characteristics and they are not exactly the same. The difference between these two candles is their position in the trending market. The Hanging Man candlestick has a small body but appears at the end of an uptrend. The body of the hammer candlestick is also small but only appears at the end of a downtrend.
Hammer candle Bearish in forex technical analysis
When the market has lower liquidity than the opening price, a Bearish hammer candlestick will appear at this time. However, it can still recover for a period of time so that the closing price is close to the opening price.
The Bearish hammer candle pattern forms a candle whose lower shadow is less than twice the body of the candle. The body of this candlestick pattern shows the difference between the opening price and the closing price. While the shadow of the candle shows the highest price along with the lowest price at that period.
This candlestick pattern signals the possibility of sellers surrendering and will create a bottom at this time. Meanwhile, if the price increases, it will signal a market reversal. These can all happen during a period of price declines after the opening.
Apply hammer candle along with indicators when trading forex
Many investors want to optimize their trading with hammer candles. But not everyone can do this because sometimes investors do not fully understand the process of using candles.
Combine hammer candle with RSI indicator
RSI is an extremely reputable indicator. They help investors recognize reversal signals in the market. This indicator is loved and used by many investors. Once overbought and oversold areas are identified, investors can place orders in those areas. If the RSI line passes through the 20 thresholds and crashes down, investors can combine the Hammer candlestick pattern as a point to place a buy order.
Combine the Hammer candlestick with the support and resistance indicator
The first is to connect the candle with the support threshold indicator. Regarding trading methods, a downtrend can be seen after determining the general market trend. Investors should wait for the hammer candlestick pattern to appear in the support price zone.
Currently, traders can open a buy order as soon as the hammer candle closes and place an order to reduce the candle by a few pips. It is also possible to place a buy order when the price of the candle is confirmed. When investors incorporate this method, trading signals become more reliable and secure.
Types of Japanese candlestick charts used in the foreign exchange market
Besides the hammer candle, let’s learn about a few other types of Japanese candlestick patterns.
Use Pin Bar candles as a technical analysis tool
Pin Bar candle is a type of candlestick that helps investors recognize a trend reversal. This candlestick has a fairly small body with either a long candle shadow or a short candle shadow. Investors can rely on this candlestick to decide when is the right time to buy or sell. The Pin Bar candlestick pattern tells investors whether the market is currently dominated by buyers or sellers.
See more: Together XM Forex: Master the game, increase income
How do the hammer candle and the Doji candle work in forex?
Concept what is a Doji candle? Doji candlestick is a pattern that occurs when price movement has stopped and the market has not confirmed the trend. This Japanese candlestick is a sign of a trend reversal. Doji is an important candle in the market. Because its signals can help investors plan future trading strategies.
Doji candlesticks are formed at the top or bottom of the intraday price trend. In a case like this, the possibility of a reversal in the market is very high. Especially if the Doji appears after a long white candlestick, it means the price will increase. If it is determined that the uptrend will continue in the near future, the candlestick warns investors that purchasing power is weakening. At this time, it is very likely that the market will reverse in the future.
Conclude
A hammer candle is a bullish reversal candlestick pattern at the end of a downtrend. When trading with this reversal hammer candlestick, investors need to consider combining it with other indicators. They can help investors make a more general assessment and provide changing signals for a future trend. Hopefully, the Forex Trading information mentioned above will be useful to readers.
FAQs
Should the hammer candle model be used for a Sideway market?
Using hammer candles in the Sideway market is not wrong. However, it will be very difficult for investors to determine the trend and choose a reversal signal.
Do you need to read economic news to invest in foreign exchange?
Understanding economic news will sometimes help investors avoid being affected by them. Economic news has a great influence on prices.
In what time frames can the hammer candle chart be used?
Investors can apply Hammer candles in a variety of time frames on the chart.
