Hammer the reversal candlestick
What Is a Hammer?
- Considered a reversal formation and forms when price moves well below open, but then rallies to close near open if not higher. (inverted hammer is the mirror opposite)
- Forms a candlestick with a long lower shadow (tail), and a small body with little or no wick–looks like a hammer, or mallet. (inverted hammer is the mirror opposite)
- Depending on the previous trend, a hammer may be referred to as a hanging man or shooting start, but the same concept applies. Bullish or bearish bias depends on previous price swing, or trend.
- A hammer after an uptrend is called a hanging man.
- An inverted hammer after an uptrend is called a shooting star.
Why are Hammers important?
- May act as a leading indicator suggesting a shift in bullish/bearish momentum.
- Completed hammers may help to either confirm, or negate, a potential significant high or low has occurred. –price drives higher or lower “hammering” out a top or bottom before closing back towards open.
- Significance increases with length of shadow (ideally 2–3 times the size of the body) as well as timeframe.
- Hammers may also help confirm, or strengthen, other reversal indicators (i.e. may occur as part of tweezer formation, or next to doji, etc.)
- It can provide relevant information where is a support or resistance.
- A hammer “fails” when new high is achieved immediately after completion (candle), and a hammer bottom “fails” if next candle achieves new low.
- A hammer “fails” when new high is achieved immediately after completion (candle), and a hammer bottom “fails” if next candle achieves new low.
Verification Signals
A few other signals you need to look out for when the candle forms.
1. If the candle has a long lower shadow there will be a higher chance of a price reversal.
2. If there was a lot of trade volume on the day the hammer forms, it will probably mean a blow-off has occurred (last breath of trading).
3. If you see that the candle has a gap down from the previous day’s close price, this will probably mean a strong reversal will happen as long as the day after the hammer has formed, the price opens higher.
4. An easy verification is that and if a candle is green it will show a bullish sign and if red, this will show a bearish sign.
What the candlestick Trading Bible is All About?
The Candlestick Trading Bible was invented by the Japanese rice trader Munehisa Homma. He is considered to be the most successful trader in history.He was known as the god of markets in his day. His discovery made him more than $10 billion in today’s dollars trading the Japanese rice market.
Since I discovered this price action system, my life has been completely changed from that of a loser, to that of a successful father and trader.If you can take a little bit of your time to read what I am sharing with you today and if you apply it, you can start to make money in any financial market.
I have spent 10 years — compiling, testing, organizing, and consistently updating this method to create my own new version, which is considered to be the easiest and most profitable trading system.You don’t need to spend an extra 10 years like I did to find a winning system, because I have shared everything I have discovered in my work.You don’t even need a Master’s degree in finance or to be some math whiz like Albert Einstein to be a profitable trader.Most successful traders are dropouts, and all you need is some common sense and the ability to act on what you know is true.
Affiliate link:
This article will be part of the blog
