The Hammer candle is one of the most popular Japanese candlesticks in technical analysis and usually appears at the end of a downtrend, making it a potential signal of a trend reversal to an uptrend. The shape of the Hammer candle is distinctive and easy to recognize, and is represented by:
1. Small body: Located at the top of the candle range.
2. Long lower shadow: Its length is at least twice the length of the actual body.
3. Very short or non-existent upper shadow.
Hammer candle meanings:
Location: It must appear at the end of a downtrend to be a bullish reversal signal.
Psychology: The long lower shadow indicates that the market was under heavy selling pressure during the time period of the candle, but buyers were able to regain control and push the price to close near the high.
Conditions for confirming the hammer candle:
It is preferable to be followed by a strong bullish candle to confirm the trend reversal.
High trading volume during the formation of the candle increases its credibility.
The difference between a Hummer and an inverted Hummer:
Hammer: The lower shadow is long and the body is on top.
Inverted Hammer: The upper shadow is long and the body is below, this also indicates a bullish reversal but needs stronger confirmation.
Practical example:
If the trend is down and you see a hammer candle at a major support level, it may indicate a buying opportunity after the reversal is confirmed.