– Reviewed by Nick Cawley, August 12, 2022
The Bullish Hammer Candlestick Pattern: Main Talking Points
The bullish hammer candlestick sample is continuously noticed in monetary markets and, like many Japanese candlesticks, supplies essential perception into market momentum. In specific, the bullish hammer may also help to validate a chart’s reversal level.
Traders can exploit the detection of a bullish hammer candle with a correct understanding of its foundations. This article will define the following:
- What is a bullish hammer?
- Using a Bullish Hammer Candlestick Pattern in Trading
- Further Reading on Trading with Candlestick Patterns
What is a bullish hammer?
A bullish hammer is a single candle discovered inside a value chart indicating a bullish reversal. It differs from different candlestick patterns because of its single candle hinting at a flip throughout a longtime downtrend.
Pictured beneath the hammer is interpreted by understanding a candles specific open, low excessive and shut ranges. To create a hammer, value should first considerably dump to create a brand new low for a currency pair. However, after this decline, costs should considerably rally inflicting costs to have a small physique and shut close to its opening value.
It’s essential to keep in mind that bullish hammers ought to have lengthy wicks not less than twice the size of the candle physique. In addition, the candle itself can both be pink or inexperienced relying on the power of the reversal.
Often the bullish hammer is confused with a bearish hanging man candle. The misrepresentation is logical as a result of each candles look equivalent. The distinction between these two candles lies of their placement in a trending market. The hanging man has a small physique and lengthy wick however is discovered hanging at the finish of an uptrend. Bullish hammers have small our bodies and lengthy wicks additionally however are solely seen at the finish of a downtrend.
How to identify a Bullish Hammer sample:
- Candle with a brief physique and lengthy wick (not less than 2x the measurement of the physique)
- Occurs at the backside of a downward pattern
- Confirmation from different indicators as talked about beneath
What does it point out:
- Trend reversal to the upside (bullish reversal)
- Price rejection at a sure ‘key level’
Value to merchants:
- Indicates potential value reversals which might result in getting into an extended place at the begin of an upward swing – capitalize on the full upward motion
- Easy to establish
Using a Bullish Hammer Candlestick Pattern in Trading
Bullish hammer candlestick in the foreign exchange market
Bullish hammer candles may be discovered on quite a lot of charts and time frames. Depicted above is an instance of the hammer on the AUD/USD day by day chart. From 20 April by to 31 May the AUD/USD fell as a lot as 892 pips. This downtrend was concluded with a bullish hammer candle, and value has subsequently rallied a complete of 792 pips by as we speak’s value motion.
AUD/USD Bullish Hammer candlestick:
As the power of a hammer depends upon its placement on the graph, usually merchants use this candle in conjuncture with different indications of value assist. This consists of utilizing instruments comparable to Fibonacci retracements, pivot factors and psychological complete numbers. In a perfect situation, the wick of the hammer will penetrate a assist stage, however the physique will shut above assist on renewed shopping for sentiment. With a brand new shopping for alternative offered, merchants could then select to put stops beneath the created wick beneath assist.
Bullish hammer candlestick in the equity market
The bullish hammer candle is interpreted the identical manner in all monetary markets (indices, foreign exchange, commodities and shares) nevertheless, stock analysis requires additional knowledge as affirmation. It is essential to notice that brokers typically present inner quantity figures for the different monetary markets together with foreign exchange which is why the quantity indicator shouldn’t be dependable for an total market quantity estimate.
The chart beneath reveals a bullish hammer candle on a Barclays PLC chart. In conjunction with the bullish hammer, there’s a subsequent relative enhance in quantity traded as highlighted. This emphasizes institutional exercise for this era because of the giant quantity – retail merchants won’t be able to have an effect on such giant volumes.
This ‘denial’ by bulls (merchants taking lengthy positions) after the current swing low shows value rejection at that stage. This stage could also be a key stage whereby ‘buy’ order are triggered. With the bullish hammer and the quantity exhibit this relationship, merchants can have some type of validation to put an extended trade. As at all times, the principals of threat administration ought to apply to all trades.
Barclays PLC Bullish Hammer:
Further Reading on Trading with Candlestick Patterns
The bullish hammer candle is considered one of many bullish value patterns that may help merchants when getting into a trade. Other bullish patterns merchants ought to pay attention to, embrace: morning star and the inverse head and shoulders amongst others.
Day merchants, nevertheless, incorporate the use of indicators and key ranges of assist and resistance, alongside candlesticks, to substantiate trades earlier than getting into. Other aides you should utilize to enhance your buying and selling embrace our free buying and selling guides and for these simply getting began, check out our New to FX information.