What is a Hammer Candlestick?
Hammer candlestick is a type of candlestick where the open high and close are roughly the same price; it is also has a long tail associated. It should occur in the downtrend and the length of the tail should be at least twice of the size of the body.
Underlying Psychology of Hammer Candlestick
The first requirement is that existing trend should be downtrend, during the session seller were selling and the underlying security price kept on decreasing. Towards the end of the session, suddenly buyer appeared and bought the price upward. This is the first sign of trend reversal in an downtrend.
How to Trade Hammer
Decision: In case of Hammer,traders should start looking for buying opportunities, buy price should be around the close price of white candle after Hammer has formed.
Stop loss: What if the market reverse its direction after printing the Hammer ? The low of the candle will act as stop-loss in case that happen.
Main Points to Consider
- Only trade hammer forming with previous downtrend.
- Wait for confirmation candle(Hollow only) after Hammer has been formed.
- Hammer with long tail works better.
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Trading doesn’t just reveal your character, it also builds it if you stay in the game long enough.Yvan Byeajee