Hammer Candlestick Pattern

More and more forex traders are using candlestick patterns as they are easier to read and follow the market. In this article we are discussing Hammer and Inverted hammer patterns in forex.

The Hammer is very similar to Hanging man but they have totally different meaning. Both have black bodies with longer or shorter shadows. The hammer is a bullish reversal pattern in candlestick chart which forms during a downtrend. It is named so as the market is hammering out a bottom.

With falling prices, hammers signal that the bottom is near, indicating that the prices will rise again. The long lower shadow signal that sellers pushed prices lower, but the buyers were able to overcome this selling pressure and closed near the open.

As a word of caution, when you see a hammer, doesn’t mean that that you should go and place a buy order. One will need more bullish confirmation to do so.

How to recognize a Hammer, the Japanese candlestick reversal pattern? It is fairly easy. The long shadow is about two or three times of the real body. There is little or no upper shadow. The real body is at the upper end of the trading range. And the color of the real body is not important.

Although it is identical to shooting star, the only difference between them is the direction of the trend. Inverted Hammer, the reversal pattern in candlestick chart occurs when price has been falling, thus suggesting the possibility of a reversal. The long upper shadow exhibits that buyers tried to bid at a higher. The sellers, on finding what the buyers were doing, attempted to push the price back down. But fortunately, the buyers had eaten enough and still manage to close the session near the open.

As the sellers weren’t able to close the price any lower, it is a good indication that everybody who wants to sell has already sold. And as is obvious, only buyers are left. It is important to follow the bullish verification on the day following the inverted hammer.