Hammer

The Hammer candlestick represents a reduction in bearish sentiment and signifies the possible end of an existing downtrend and start of a new uptrend.

Hammer

The Hammer candlestick represents a reduction in bearish sentiment and signifies the possible end of an existing downtrend and start of a new uptrend.

 

Hammer Identification

The Hammer candlestick forms when a stock moves significantly lower after the open, but rallies to close well above the intra-day low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during an advance, then it is called a Hanging  Man.



Hammer candlestick

Hammer Interpretation

The Hammer candlestick signifies a reduction in bearish sentiment. The long stick signifies an initial continuation of the downtrend. However, renewed buying activity acts as support and drives the price higher to close near its opening price.

The strength of a Hammer candlestick depends on where it appears. If a hammer forms near support levels, then the likelihood of a strong bullish reversal is high.  However, if the hammer forms in the middle of a trading range it tends to have little significance. In ideal conditions traders want the wick length to be several times longer than the body of the candle. The longer the candle, the more buyers were able to drive price back up and the stronger the bullish signal this candle provides.



The bullish Dragonfly Doji  is a stronger buy signal than the Hammer. Since a Dragonfly candlestick reflects more uncertainly and lack of direction, technical analysts will usually take it as a stronger buy signal.

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