What are Candlestick Hammer?
It is a reversal candlestick pattern with long lower shadow and no upper wick. It is a simple candlestick pattern made of a single candleline. They are bullish in nature.
It is called hammer because of its resemblance to the tool hammer.
A hammer typically appear at the end of a down trend. They have a small real body at the upper end of the candle. The body may be black or white. They have a long lower wick which is double the height of the real body. The upper wick may be absent or very short.
It is formed because of the overpowering of bulls over bears. After opening the sellers push the prices down by over supplying the stock. But later in that time period the buyers increase in number and the demand for the stock increases. The price moves up and closes near the opening, either just below or just above the opening price.
The market opens and continue their down trend. At the lower end of the trend the sell off ceases. The trend reverses and the demand increases, pushing the price higher to close near the opening or little above. This is a clear indication of cessation of the down trend. Uptrend is likely to start.
A white bodied hammer candle is more bullish than a black bodied hammer. If it occurs with increased volume all the more better. Next day's price movement confirms whether the trend is reversed or continuing.
When ever you see a candlestick hammer, especially if it is at a support level and accompanied by high volume, watch out. If next time period is a bullish day or a white candle it is a confirmation that the buyers are really interested in the stock. The sentiment has changed from bearishness in the favor of bulls.
On the third day or on the third time period, buy above the high of the second candle. Place the stop loss below the low of the candlestick hammer.
Candlesticks with similar features, when they appear at the end of an upper trend are called as Hanging Man candlesticks which are bearish in nature. So the name changes depending on, whether they appear at the end of an up trend or a down trend.
There are many more simple candlestick patterns used in stock analysis. Some of them are listed below. You may click on the name of each pattern listed below to learn and understand more about them.
White Candles are bullish lines in candlestick and candlevolume charts. They signify that the closing price is higher than opening price for that time period.
Black Candles or black candlesticks are bearish lines in candlestick and candlevolume charts. They signify that the closing price is lower than opening price for that time period.
Long lower shadow of a candlestick indicates that the bears are loosing power and bulls are gaining power in that time period.
Long upper shadow of a candlestick indicates that the bulls are loosing power and bears are gaining power in that time period.
Inverted Hammer is a bullish reversal candlestick pattern. They occur at the bottom of a down trend. It is so named because a Candlestick Hammer, which is also a bullish reversal pattern is placed upside down.
Shooting Star is a bearish reversal candlesticks pattern. They occur at the top of an up trend.
A Hanging Man candlestick is a reversal candle pattern with long lower shadow and no upper wick. They are bearish in nature.
Spinning Top candlestick is a candle pattern with small real body. They represent the areas of uncertainty.
Doji candlestick is a candle pattern with out a real body. They represent the areas of uncertainty.
Dragonfly Doji candlestick is a candle pattern with out a real body and upper shadow. They represent the areas of uncertainty.
Gravestone Doji candlestick is a candle pattern with out a real body and lower shadow. They represent the areas of uncertainty.
Marubozu White candlestick is a white candlestick with out shadows. They represent strong bullish trend in the market.
Marubozu Black candlestick is a black candlestick with out shadows. They represent strong bearish trend in the market.
These are hybrid created by combining the features of Equivolume charts and Candlestick charts. The effect of high volume is pictorially emphasized.