Cryptocurrency has revolutionized the world of fintech just like when debit cards came into use. It is even seen as a bigger expansion of technology and finance because it does not have any geographical boundaries. On the other hand, blockchain technology has made cryptocurrency extremely safe even though the crypto market stays volatile to some extent.
Traders are always keen to know about the market trends; hence, they require authentic platforms to know about the price trends. DOMINO DEX is a next-generation decentralized exchange (DEX) that makes trading easier. Once launched, it will charge a very minimal fee to the traders with no Sign-up required.
It is highly important to note that cryptocurrency gives its owner full control over the assets. On the other hand, cryptocurrency holders and traders use different techniques to maximize their profits. In easy language, trading means buying and selling coins through an exchange after doing market speculation.
These days, many traders prefer decentralized exchanges for trading. The main reason is that decentralized exchanges give full authority to the people over their assets. DOMINO is a DEX through which traders can enter the trading world.
If you are a trader, then you must have heard about the hammer candlestick. Chances are, you might have profited from it. But for the uninitiated, we will discuss everything about the hammer candlestick. So, let us see what the hammer candlestick pattern is and how it works.
What Is a Hammer Candlestick?
The Hammer candlestick pattern is used for technical analysis in the field of finance to know about the market situation. It is not just used in crypto but also in forex trading, stocks, etc. Similarly, this is the most useful technical way to check the bearish and bullish trends of the market.
To know about the market trends, users can select the time frame. For instance, if you look at a 6-hour pattern, each candle will represent 6 hours of trading. If you look at a 24-hour chart then it will show a one-day trading activity.
Furthermore, the candlesticks have an open price and a close price. The wick of the candle shows the highest and lowest price of the time frame selected. These are called candlesticks because each bar in the chart looks like a candle — it has a body and a wick.
Meanwhile, the hammer candlestick pattern provides an analysis of how the market has been generating. Moreover, it makes it very easy for the trader to decide how long to hold a particular asset.
How the term ‘hammer’ was coined wasn’t really rocket science. Basically, a hammer candlestick is one that looks like, well, a hammer. The main body that tells the opening and closing price resembles the metal part of the hammer (head, face, etc.), while the highest or lowest price in the candlestick looks like the handle.
Candlesticks that feature inverted hammers appear after the downside denotes the bullish market. Meanwhile, a hangman candle or a shooting star candle is an example of bearish hammer candles after an uptrend. Hence, knowing about the candle pattern is important to comprehend the cryptocurrency market. We will go through each type of hammer candlestick shortly.
How To Trade With Hammer Candlestick Patterns
Most traders prefer the candlestick pattern because it gives insight into the price trends in one glance. As the name implies, hammer candlesticks have a small body and a long wick at the bottom. Wicks should be at least twice as large as candle bodies. Having a long lower shadow means sellers pushed the price down before buyers raised it again above the open price.
In reading the candle hammer candlestick pattern, the colors are also very important. The red color means the asset closed much lower than the price it was opened at. On the other hand, the green color denotes an asset closed higher than it was opened.
Every financial market witness ups and downs and the same is the case with the crypto market. In the next section, the readers will get an overview of the bullish and bearish market trends in crypto trends.
Bullish Hammers
When a candlestick closes above its opening price, it forms a bullish candlestick hammer. During that period, buyers controlled the market. This trend occurs when the price drops but the buying pressure pushes it upward. This is one of the reasons why trading is extremely important to maintain a bullish market.
Another example of a bullish hammer is an inverted hammer candlestick. It has a longer upper wick/shadow. Sometimes, it does not have a wick or a smaller one on the lower side. This candle shows that it opened from the downtrend but closes above the opening price.
Bearish Hammers
Candlesticks with a bearish hammer are called hanging men. Red candles occur when the opening price is higher than the closing price. The bearish hammer candlestick denotes the market pressure and also predicts the reversal to the downside
Another bearish hammer candlestick is a shooting star candle. Shooting star candlesticks are inverted bearish hammers. An inverted hammer may appear to be just like any other. However, instead of reflecting a bullish reversal, it indicates a bearish one.
Strengths and Weakness of Hammer Candlestick
Every candlestick pattern has strengths and weaknesses. No technical or market analysis can guarantee success or profits, but some patterns help the analysts to study the market in a better way.
The two most important advantages of using a hammer candlestick pattern are:
- The hammer candlestick pattern is used to check the fluctuations in the financial market.
- This can be very beneficial for the traders to see if they can trend the assets or hold them for some time to maximize return on investment.
There are two weaknesses associated with the hammer candlestick pattern:
- Some traders believe the hammer candlestick pattern is not reliable, and they should not solely depend on them.
- There is no guarantee of this alone and should be combined with other techniques to study the market.
Hammer Candlestick Pattern for Technical Analysis
It is highly important to learn about hammer candlestick patterns for every new trader. Even though it is not the only way for analysis, it is one of the most popular ways to speculate about the fluctuation in the market. Furthermore, the traders can understand the specific pattern of any currency.
Those people who want to enter daily trading can take help from this pattern. By simply zooming in, the price bounce can be observed. It also tells the traders when it bounced back to higher before reaching the low. Concluding, it is not wrong to say that the Hammer Candlestick pattern is the first choice for traders for technical analysis of the financial market.
