Hammer Candlestick Pattern Hammer is an important pattern in technical analysis, often appearing when the market is falling and predicting future price increases. In this article, Forex Trading will provide detailed information about the Hammer Candlestick pattern for traders to gain more knowledge. Let’s see!
Overview of Hammer Candlestick
Hammer Candlestick Hammer signals the weakening of the downtrend and uptrend shortly. Candles have a distinctive structure that is easy to recognize, helping investors make appropriate trading decisions. Below is some general information about Hammer Candles.
What is the concept of Hammer Candlestick Hammer?
Hammer candlestick, also known as Hammer Candlestick, is a type of Japanese candlestick pattern that represents a reversal in price trend. This pattern often appears after the market has tested the bottom. In particular, Hammer candles are simple with a candle shaped like a “hammer”. The candle body is small, the upper shadow is small or absent, and the lower shadow is at least 2 or 3 times longer than the candle body.
Hammer candlesticks often appear at the end of downtrends, showing that sellers have taken control of the market. This leads to a decrease in prices. However, the Hammer candlestick does not prove that buyers have taken over the market. It only shows that the market is recovering and a sign that the downtrend is weakening. Prices will likely increase shortly.
In contrast to Hammer candles, there is another type of candle you should also learn about doji candles. So what is a doji candle? In Forex, while Hammer candles often appear at the bottom of a downtrend, Doji candles often indicate uncertainty in the market when there is no clear takeover between buyers and sellers.
See more: Read candlestick charts: Basic & advanced material
Characteristics of the Hammer Candlestick model
Some distinguishing characteristics of the Hammer candlestick pattern:
- Small body, long shadow (at least twice as long as the body).
- Blue or red.
- A bullish candle shows a strong reversal. Usually appears. at the end of a downtrend.
- Strong blow after at least 2-3 discount sessions. The previous clear downtrend is more important. Bullish candles reinforce the reversal signal.
Meaning of the Hammer Candlestick hammer chart
To trade fluently with the Hammer pattern, you need to clearly understand its meaning. It represents the market’s rejection of prices going lower, and at the same time strongly signals that the trend is about to change from bearish to bullish. When investors identify a reversal point, they can decide to close the current position and open a new, more suitable one.
Another type of candle that can also signal market trends is the Marubozu candle. The Hammer Candle can be used as a signal to buy, while the Marubozu Candle can be used as a signal to buy or sell depending on the direction of the candle body.
Types of Hammer candles in Forex
To understand more deeply about the Hammer candlestick pattern, you can see some types of candlesticks below.
Bullish candle
A Hammer candlestick appears when a downtrend is ending, indicating a possible increase in price. This candle has a small body, little or no upper shadow, and a long lower shadow. The candlestick shows the price dropping to a low but closing higher afterward, also indicating a possible reversal. At that time, the long shadow below shows that the market does not accept lower prices.
Reversal candle
The Hammer candlestick and the rising hammer both indicate a reversal. This candlestick has a long upper shadow and a small body, with little or no lower shadow. Often seen when a downtrend is nearing an end, the “bulls” push the price up.
Instructions on how to trade with the Hammer Candlestick Hammer model
These are ways to optimize profits and reduce risks when trading the Hammer candlestick pattern.
Determine entry point, take profit, and stop loss
Before deciding to enter the market, traders need to remember that the ideal trading time for the Hammer Candlestick model is D1, then H4.
There are 3 ways to enter orders with the Hammer candlestick pattern:
- Method 1: Buy at 50% of the candle price. This is the standard entry point with the highest profit.
- Method 2: Buy at the opening price of the candle after the Hammer candle. Less profitable but this is a safe solution.
- Method 3: Buy right after the trading session ends when a Hammer candlestick forms. Safe and secure, but less profitable.
For traders with little experience and capital, the second method is the most reasonable choice.
- Stop loss: 2-3 pips below the shadow of the candle.
- Take profit point: above the highest of the candlestick Hammer when the R: R ratio reaches 1:1 or 1:2.
Combine Hammer Candlestick with other technical indicators
Only trading with the Hammer candlestick pattern is not enough to achieve stable profits. To improve, we will share the two most effective trading methods.
Combined with a support level
- When the Hammer candlestick pattern appears in the support zone, the possibility of a price reversal increases. Because at this time, the indicator supports reliable reversal signals.
- Regarding trading methods, when the market drops, traders wait for the Hammer candle at the support level, open BUY when the candle ends, and place a stop loss below the candle’s tail.
- It is also possible to BUY when a confirmation candle forms, especially when combined with support. This signal is reliable, don’t worry about the price going wrong.
Instructions on how to trade with the Hammer candlestick pattern
Combined with the RSI indicator line
- When RSI indicates overbought or oversold conditions, traders often use the 20 – 80 level.
- When the RSI line appears in the oversold zone and crosses the 20 threshold, it is the ideal time to open a buy order at the candle’s ending price. At the same time, placing a stop loss below the tail of the Hammer candlestick is similar.
In addition to the two popular indicators mentioned, you can also combine the Hammer candlestick pattern with other tools such as MA and Fibonacci lines to increase effectiveness.
Things to note when trading with the Hammer model
Some notes when trading with the Hammer Candlestick Hammer model:
- When the market is moving sideways, you should not trade with Hammer candles. This candle does not predict the trend but often gives inaccurate reversal signals, especially when the next candle falls.
- Confirming candles increase confidence, but are not decisive. Combining Hammer candles with other indicators will help decide orders more accurately.
- The Hammer candlestick pattern is more reliable when the candlestick tail is longer. Trading volume is also important, with low volume before the Hammer candlestick forms, the reversal signal from this candlestick will be more accurate.
- If you only watch candlesticks without evaluating the trend, traders may make wrong decisions. To trade successfully, traders need to find information that supports the opposite trend.
- Looking at the Hammer Candlestick near support, Fibonacci levels, or overbought signals from the CCI or RSI is important.
See more: Together XM Forex: Master the game, increase income
Conclude
We hope the information we provide will help you better understand the Hammer Candlestick Hammer pattern. In particular, it is important that you have a careful investment strategy and should not hastily pursue short-term profits. And don’t forget, follow Forex Trading to update useful information about investing and trading effectively!
Frequently asked questions
What is the structure of Hammer candles?
Candles have a characteristic structure that is easily recognizable. The candle body is short, usually green (bullish candle) or red (bearish candle). The lower candle shadow is long, at least twice or three times longer than the candle body. The candle shadow above is short or may be absent.
How to use Hammer candles in trading?
Candles can be used as signals to buy when appearing at the end of a downtrend. should. be combined with other technical indicators to confirm trading signals. It should be noted that candlesticks are not perfect signals and can appear misleading.
How to distinguish Hammer candlesticks from other reversal candlestick patterns?
Hammer Candlestick. can be confused with other reversal candlestick patterns such as doji candles, engulfing candles, and piercing line candles. However, candlesticks have a distinctive structure that is easy to recognize, helping investors to clearly distinguish them.
