Candlesticks – Hammer
A Hammer is a popular pattern, which is a type of a bullish reversal candlestick pattern. Technical analysts use this pattern a sign of a potential reversal in the market.
The Hammer consist of a candle that looks like an actual hammer, as it has a long lower wick and a short body at the top of the candlestick with little or no upper wick. Most analysts consider that for a pattern to be considered a valid Hammer, the lower wick must be two times greater than the size of the body portion of the candle, and the body of the candle must be at the upper end of the trading range.
Traders generally use the Hammer pattern formed in a downtrend, as a very clear sign of a potential reversal in the stock, as it represents a period of trading where the sellers were initially in control but the buyers were able to reverse that control and drive prices back up to close near the high for the day.
After indentifying the pattern, traders need to wait for price action confirmation; the stock needs to actually open higher than the close of the prior period in order to confirm that the buyers are actually in control.
Stocks that have demonstrated a Hammer formation can be found listed below.
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