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What is a Hammer Candlestick Pattern

The Hammer Candlestick Pattern is a Strong Bullish Reversal Pattern

The Hammer candlestick pattern is a bullish reversal pattern

What is a Hammer Candlestick Pattern?

A Hammer candlestick pattern is formed when a small real body is found at the upper end of a trading period, with little or no upper shadow and a long lower shadow. The long lower shadow should be at least twice the length of the real body and represents a potential reversal of the downward trend. The color of the real body is not important, as it can be either bullish (white or green) or bearish (black or red).

In simpler terms, the Hammer pattern consists of a short body with a long tail below it, resembling the shape of a hammer. The long tail shows that prices fell significantly during the trading period, but then rallied and closed near the opening price, indicating a potential reversal of the downward trend.

A bullish reversal pattern is a way of looking at stock prices that suggests that the stock price is about to go up instead of down. This happens when the stock price has been going down for a while, but something changes to make people more likely to buy the stock, which makes the price go up. This pattern is just a suggestion and is not a guarantee that the stock price will actually go up, but it is a sign that something might have changed and that it is worth looking into the stock to see what is happening.

Bullish hammer patterns suggest that, despite initial selling pressure pushing prices lower, buyers ultimately overpowered sellers and pushed prices back up. The pattern can be used as a potential bullish reversal signal and traders may look to enter long positions.

The Hammer pattern is made up of three parts:

The body: This is a small rectangle on the chart that shows the difference between the opening and closing prices for the stock.

The shadow: This is a line that shows how high or low the price went during the day, with the "handle" of the hammer pointing down.

The handle: This is the long part of the shadow that shows how low the stock price went during the day.

The Hammer pattern signals that there may be increased buying pressure, which could lead to a rise in prices. However, it's just a suggestion and it's important to look at other factors, such as overall market conditions and the company's financials, to get a more complete picture of what might happen to the stock price in the future. 

The Hammer pattern is formed when the following conditions are met:

  • The real body of the candlestick is small and can be either red or green.
  • The lower shadow is much longer than the real body and at least two times the length of the real body.
  • There is little or no upper shadow.

The long lower shadow indicates that prices moved significantly lower during the period, but ultimately ended near the opening price, which suggests that buying pressure emerged and prevented prices from closing lower.

The Hammer pattern signals a potential reversal of the previous downtrend, as buyers were able to push prices back up towards the opening level. However, it is important to note that the pattern alone does not guarantee a reversal, and additional analysis and confirmation are necessary to confirm a revesal,

The Difference Between a Hammer Candlestick and a Doji

Feature Hammer Candlestick Doji
Shape Long lower shadow and a small body Long upper and lower shadow with opening and closing prices at the same level, creating a cross shape
Formation Prices move significantly lower during the period, but ultimately end near the opening price Opening and closing prices are the same or nearly the same
Interpretation Suggests that buying pressure has emerged and prevented prices from closing lowe Indicates indecision and a potential change in trend