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Know about Hammer Candlestick Pattern | Inverted Hammer Candlestick Pattern with Bearish and Bullish Market Conditions
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Hammer candlestick patterns help investors to decide whether to enter the market or exit. They are considered to be the best indicator for intraday traders
What is Hammer Candlestick Pattern ? How does it Works ?
Candlestick patterns were invented in Japan but are used worldwide to visualize the basic four factors: opening, closing, high and low prices of the day having an upper and lower shadow. It is widely used, especially in technical analysis. It is a very useful indicator for price action traders, and they use candlestick charts to check the probability of reversal after the bearish and bullish market conditions.
The hammer and Inverted hammer are among the patterns of the candlestick chart. Both of these Hammer Candlestick Patterns are visible at the bottom of the downward trend or in a Bullish Market. The hanging man and shooting star are other patterns in candlestick charts used in the bearish market; they usually appear after a price uptrend.
The hammer must look like the English alphabet 'T.' This shape indicates the creation of a hammer candle and does not indicate any price reversal on either upside or downside until the confirmation.
How to get the confirmation? Well, it's very simple. If the candle next to the hammer closes above the closing price of the hammer, it represents confirmation. Traders use this confirmation signal to either enter into the long position or exit from the trade. They must ensure keeping a stop loss while entering into the long position. Ideally, the stop loss would be located below the lowest price of the shadow of the hammer and also know bearish and bullish market conditions
Bearish Hammer Candlestick Pattern can be seen in all time frames, from one-minute charts to daily and weekly charts.
Though they are the ideal indicators for getting a glimpse of the daily price trend, traders also use trend analysis, technical indicators and many other indicators to be sure before making any trading decisions.
Let us see what these Hammer Candlestick Patterns and Inverted Hammer Candlestick Patterns mean, and then we shall move forward in understanding their importance.
1. Hammer Candlestick Pattern : when the day's closing price is greater than the opening price, it creates a bullish candlestick hammer. It indicates that the buyers had control over the market prior to its closing for the day.
2. Inverted hammer Candlestick Pattern : when the opening price for the day is less than the closing price for that day, an inverted Hammer candlestick is created. The Inverted hammer candle is a bullish reversal pattern that is seen after a decline in the price.
The Importance of the Hammer Candlestick Chart in the Indian stock Market
Let us see how important the hammer candlestick pattern is for traders and why they should not ignore it.
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The candlestick pattern acts as a major indicator for intraday traders as it suggests a shift in bullish or bearish trend in the market.
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Hammer candlestick pattern indicator helps traders to either confirm or avoid the probable high or low price.
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Its importance increases with the increase in the length of the shadow.
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The hammers also help traders identify and interpret other indicators such as tweezer formation, Doji, etc.
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A hammer experiences failure when a new high price is visible just after the closing and the bottom part of the hammer fails when the next candle reaches a new low price in the trend.
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