๐ The Hammer Pattern
The Hammer candlestick pattern is a bullish reversal pattern that signals a potential price turnaround. It usually appears at the end of a downtrend and indicates that bullish momentum may be starting. The pattern gets its name due to its resemblance to a hammer, with a small body and a long lower wick.
๐ Key Characteristics of the Hammer Pattern
โ Small Real Body โ The candleโs body is small, showing little difference between the opening and closing prices. It can be red (bearish) or green (bullish).
โ Long Lower Shadow โ The lower wick must be at least twice the size of the real body, indicating strong rejection of lower prices.
โ Little to No Upper Shadow โ A Hammer should ideally have no upper shadow or a very small one.
โ Position in a Downtrend โ It must appear after a downtrend to be considered a valid bullish reversal pattern. If it appears after an uptrend, it's a Hanging Man, which is bearish.
๐ง Market Psychology Behind the Hammer
๐ธ Downtrend Preceding the Hammer โ Bears are in control, pushing prices lower.
๐ธ Intra-day Decline & Recovery โ The price initially falls, but buyers step in and push it back up.
๐ธ Bulls Take Control โ The long lower shadow signals that buyers rejected lower prices and are regaining strength.
๐ธ Confirmation Needed โ A bullish candle or a gap-up on the next day strengthens the Hammerโs bullish signal.
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๐ Conclusion
The Hammer pattern is a valuable bullish reversal signal, but traders should always use it alongside other technical indicators like volume, trendlines, or moving averages for confirmation. Never rely on a single pattern for trading decisions.
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