Introduction to Hammer Candlestick
A hammer is a bullish reversal candlestick pattern that usually happens after downtrends. It helps the investors and analysts locate the supply and demand, and is recognizable with its singular form of a short body and a long lower wick and no upper wick/shadow.
Understanding Hammer Candlestick
A hammer candlestick is a technical analyst tool that reviewers use to identify a downward trend reversal. A hammer candlestick forms due to the price of the stock being unable to go any lower, in such a form that the high, the open and the close are all very close in numbers to each other, thereby forming a small real body. The candlestick looks like the english alphabet’s capital ‘T’. The formation of such a candle happens when the majority of the traders were actually selling throughout the day—hence the drop in prices, but were easily overpowered by the buyers, who then drove the price up to the candlestick high. This means that the stock opened at a price, was driven to the lowest price, but closed above or near its opening price. The longer the lower shadow under the real body, the more significant the activity on that stock becomes. Hammer is an essential candlestick pattern that helps investors locate the demand and supply. Because of the formation of the hammer, which represents a reversal, the majority of traders move to hold short positions. Conversely, an inverted hammer candlestick exists that shows that where buyers had once been in control, the sellers were able to overpower them. It takes the shape of an inverted capital ‘T’, and appears at the end of a downward trend. However, when it appears in an upward trend, it is called a shooting star.
Highlights of Hammer Candlestick
When a hammer appears at the end of an upward trend, it is called a hanging man, which shows a bearish reversal. The price decline and the sellers prompting it are the prime contributors to the hammer pattern, right alongside the investors that drive the price above the trend’s support line. It usually takes three days for the stock to find its support line during a day trade. The lower shadow of a hammer must be longer than the real body. The colour of the real body of the hammer does not really matter; only the end of the trend does. Price prediction using a hammer candlestick is, however, not possible.
