Courtesy of Market Tamer
Improve Your Market Timing: The Hammer Candlestick Pattern
- The Hammer candlestick is a single session candle and is characterized by a small real body that closes in the upper 1/3 to 1/4 or the trading range of the session.
- The shadow of the pattern should be at least twice the size of the real body and there should ideally by no upper shadow.
- The candle is found at the bottom of a bearish trend and is more powerful if confirmed with other support.
- The color of the real body is not critical, although a white body is somewhat more bullish.
- A hammer on large volume at the bottom of a trend may be considered a capitulation day.
- The reversal is much more likely when the shadow is relatively long as compared to the real body of the candle.
- A gap down into the hammer and then a gap up, trade up on the follow through day is a very strong reversal signal.
- The classic hammer indicates a change in trader sentiment because at one point during the trading session the candle was long and dark representing massive bearishness. However, before the end of the day the bulls had pushed the stock back up to the top of the trading range on volume.
- Bears should begin to question the continued downtrend and when the stock follows through to the upside the next day it becomes confirmation that the trend has reversed.
Dow
S&P 500
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