Forex Trading

Hammer Pattern

trading strategies

Forex Pops Provide Free MT4 indicators and tools for help all beginners. A number of indicators came collectively for IBM in early October. After a steep decline considering august, the inventory fashioned a bullish engulfing sample , which changed into showed 3 days later with a sturdy develop. Aig’s inventory price subsequently found help at the low of the day. In fact, there has been so much guide and subsequent shopping for strain, that costs had been able to close the day even higher than the open, a totally bullish sign.


By the day’s end however , the bulls have managed a recovery by pushing price back up. During the trading day, the bears are dominant and force price much lower. Typically we want the lower wick to represent at least two thirds the length of the entire candle formation. Normally, a reading of more than 20 means that the trend is strong.

By following these three concepts, can increase their chances of success and profit potential. The best results from hammers are achieved when three or more gradually declining candles precede them. We say the price declines whenever a candle closes at a lower point than the prior candle.

The Bullish Hammer Candlestick Pattern: Main Talking Points

Similar to traditional candles, they can occur as both green and red candles and help to identify price reversals. An example of these clues, in Chart 2 above, shows three prior day’s Doji’s that suggested prices could be reversing to an uptrend. For an aggressive buyer, the Hammer formation could be the trigger to potentially go long. As we have seen, an actionable hammer pattern generally emerges in the context of a downtrend, or when the chart is showing a sequence of lower highs and lower lows. The appearance of the hammer suggests that more bullish investors are taking positions in the stock and that a reversal in the downward price movement may be imminent. Hammer candlesticks indicate a potential price reversal to the upside.

  • The pattern suggests that sellers have attempted to push the price lower, but buyers have eventually regained control and returned the price near its opening level.
  • To identify the Hammer candlestick pattern, a trader needs to open the trading platform and find it on the chart.
  • The Hammer pattern is a 1-bar bullish reversal candlestick pattern.

Therefore, it is recommended to use hammers along with other technical indicators and chart patterns. Some traders confuse the inverted hammer pattern with the shooting star. Although they are similar in appearance, they are different in many other regards.

Once the bottom has been created, this points towards a possible reversal of the price direction. The price falls and then regroups to close near the opening price. Candlestick patterns are one of the most versatile tools used for understanding the movements of the market. The patterns have developed from a unique technique used by Japanese businessman, Munehisa Homma, in the 1700s. The Hammer patterns proved to be so successful that they soon became the basis for trading any liquid commodity in Japan. Change the time frame of the candles to a lower one to see what happened yesterday.

And, the Relative Strength Index supported the hammer by showing it as an overbought level. A hammer should appear after a long trend or at the end of a correction chart pattern. It is not reliable if establishes three or four candles after a trend reversal, or one candle in a correction pattern. If either of these conditions is met, it will signal that buyers are likely in control, and the trend may reverse. If neither condition is met, then it is best to avoid taking any action on the Inverted Hammer candlestick pattern. Hammer patterns form when the price of a security trades lower than its opening price but rallies to close above its opening price.

It is characterized by a small real body and a long lower shadow at least twice the length of the real body. The regular hammer forms after a downtrend, and its candle looks like a regular hammer candlestick with a small body and a long upper shadow. Like the Hammer, an Inverted Hammer candlestick pattern is also bullish. The Inverted formation differs in that there is a long upper shadow, whereas the Hammer has a long lower shadow.

There are main 2 versions , both share the same core construction but differ in who won the battle at the end of the timeframe. Learning what you need to succeed may seem like a lot of work to do. But you don’t have to worry since I’m always here to assist you all through your trading journey if you are willing to do the right thing and put in the hard work. In this trading course, I will teach you everything you need to succeed in trading, but I cannot force you to do what is required to deserve success in your trading. While you may think you deserve to succeed in trading, your trading account will tell you whether you’re getting it or not.

Welding Hammer

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The highest probability trades using the hammer will be found when adding in other factors to increase the trades odds such as indicators, major support and the overall trend. Hammer candlesticks can often produce false signals, but this is often when the market situation is not taken into account.

pros and cons

On the other hand, the bullish hammer suggests that the selling pressure is about to end, and a new bullish trend is starting. Using hammer candles in technical analysis, traders can identify potential points of a bullish price reversal at various time intervals. Trading on hammer candlesticks can be very profitable if traders can reliably identify them by adhering to the identification rules. A hammer or inverted hammer is usually at the end of a downtrend, preceded by three red candles, and followed by a price increase. In contrast, the Hanging Man or Shooting Star is typically at the end of an uptrend, preceded by three green candles, and followed by a price drop.

The candle is composed of a long lower shadow and an open, high, and close price that equal each other. Under these circumstances, the signal you’re keeping an eye out for is a hammer-shaped candlestick with a lower shadow that is at least twice the size of the real body. 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.

Trading Strategy 2: Inverted hammer with RSI

It is up to you to do what can make you deserve that success you desire. When the market has moved too much to the downside, we say that it’s oversold. And when it’s moved too much to the upside, we say that it’s overbought. Previously we discussed how you could use volatility to filter out bad trades.

A hammer candlestick does not indicate a price reversal to an upward trend until it is confirmed. This occurs if the candle following the hammer closes above the closing price of the hammer. It is a bullish candlestick pattern and it generally indicates a bullish reversal. Hammer candlestick is used by many traders as a part of an overall trading strategy. You will be surprised to know that this pattern actually works better in an uptrend!


Once all the conditions for your trading setup have been met, you can look for an entry trigger. With the above 3 points, you know so much that most traders don’t know. Always see the Hammer as a retracement against the trend on the lower timeframe. Keep in mind they will not always work and they are not a 100% foolproof trading entry signal. An example of this is first finding a trend and then trading in the trends direction. Funded trader program Become a funded trader and get up to $2.5M of our real capital to trade with.

After I learned about the basics of candlestick chart analysis, I proceeded to dig deeper into patterns. When you analyze a candlestick chart, you focus on individual candles, pairs or triplets, to “predict” which direction the stock is going. What is Hammer Stock Pattern Well, before I came to understand what that is, I first learned how to read and understand candlestick charts. You can read about inverted candlestick pattern and its use in trading in this article here.

A Doji has different variations such as Doji dragonfly , Doji dragonfly , Doji star etc. , however Hammer has no such versions. Though the nature or look of the candle is same , the meaning is completely different, and one must be careful in using it in their trading plan. Hammer occurring along with a spinning top or even multiple hammers together also increases the chance of hammer to work. Because it occurs so frequently , it is not generally used on its own to make a trading decision and only as an aid in an overall trading plan.

The Hammer candlestick patterns are recognizable and relatively easy elements of candlestick chart analysis. While it may indicate a change in the trend, it requires confirmation. The “body” part of any candlestick simply refers to the difference between the opening and closing price and is either coloured in green or red. It appears green when the closing price was above the opening price and red when the closing price was below the opening price. A valid hammer forex pattern needs to have a lower wick that is at least twice the size of the candle’s body.

For those taking new long positions, a stop loss can be placed below the low of the hammer’s shadow. The hammer candlestick occurs when sellers enter the market during a price decline. By the time of market close, buyers absorb selling pressure and push the market price near the opening price. The hanging man and hammer candlestick patterns can be quite easy to mix up unless you understand one key factor. Then, as soon as you identify a candle that closes above the closing prices of the bullish hammer candle, you can enter a long trade (as you can see in the EUR/USD chart below).

The formation of this pattern indicates that the bulls were trying to rise. However, this was unsuccessful, and the bears lowered the price to the candle’s opening price zone. The bullish Inverted Hammer candlestick is a price reversal pattern at the bottom. Another way to enter a long position relies on the RSI first crossing from an oversold condition back above the lower 30 value line. Some traders will see this as a more conservative approach but an important additional confirmation that prices are indeed getting ready to move higher.

It is imperative to have more bullish confirmations before taking any decisions. The Hammer candlestick pattern is a bullish reversal pattern that indicates a potential price reversal to the upside. It appears during the downtrend and signals that the bottom is near. After the appearance of the hammer, the prices start moving up.

What does the Marubozu Candlestick Pattern on the chart warn about? What is the meaning of the Marubozu in Forex and other markets? Click the ‘Open account’button on our website and proceed to the Personal Area. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading. According to, there are more than 9250 different cryptocurrencies.