Reversal Hammer Candlestick


Long term investors can wait for ‘trend reversal’ candlestick patterns to buy quality stocks close to the bottom. Notice how the hammer candle meets all of the three requirements that validates its pattern. The lower shadow within the hammer formation is at least two thirds the length of the entire candle.

bearish reversal patterns

The color of the hammer doesn’t matter, though if it’s bullish, the signal is stronger. A doji is another type of candlestick with a small real body. A doji signifies indecision because it is has both an upper and a lower shadow.


For a full overview of candlestick charts and patterns, check out this post. Upon the appearance of a hammer candlestick, bullish traders look to buy into the market, while short-sellers look to close out their positions. The beauty of a hammer candlestick chart pattern comes from the way to trade it. Because it shows a fight between bulls and bears, traders know where to set the boundaries. It’s not possible to see a hammer candlestick in uptrend markets.

The upper shadow either doesn’t exist or is too small. The hammer Candlestick serves as a key tool to determine buy positions. The falling window candlestick pattern consists of two candles, and there is a gap between them due to high volatility in the market. The falling window is a trend continuation candlestick pattern, indicating that bears are influential in the market.

Bullish harami

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  • Enter a long position immediately following the hammer candle’s formation, assuming the above conditions have been met.
  • This candle has a long upper wick, a small body, and a short lower wick.
  • It shows that the price is ready to decline after a strong uptrend as the candlestick has a long lower shadow that depicts the force of bears.
  • The patterns below don’t need to appear precisely on stock or forex charts.
  • This movement shows that while sellers tried to send the price of the security downwards, buyers regained strength and sent the prices higher.

The on-neck pattern occurs in a downtrend and shows that bulls are getting powerful enough and can change the trend from down to up. The psychology behind the inverted hammer formation is that buyers try to push the price up after the open price, but sellers come and push the price down again. It has a small body, and the upper wick size is at least twice the size of the body. And this candlestick has no lower wick, or sometimes it has a tiny lower wick which is okay. I have steered clear of single candlestick patterns for a while now due to having lost money by doing what you advised not doing at the beginning of your post.

The signal is stronger if hammer appears after a long decline in price. As such, it’s best to focus on the hammer pattern because it will provide us a better probability of success compared to the inverted variation. If you’re familiar with different candlestick patterns, you will recognize the above formation as being similar in appearance to the shooting star formation.

Nonetheless, it is advisable to ensure that any trend reversal indication tallies with other popular technical trading tools before taking major action. Now, we can move on to the next step to see whether or not a viable trading opportunity exists. To do so, we have to confirm that a prior downtrend was in place prior to the hammer candlestick formation.

Forex Hammer Candle Trade In AUDJPY

The only way to have the same reversal pattern is when the market forms a hanging man candlestick. As a reversal pattern, the hammer candlestick is bullish. Part of the Japanese candlestick techniques, the hammer candlestick stands out of the crowd. While a single candle pattern, it sends a strong signal to technical traders.

It means the ongoing downtrend is about to change from down to up. The Hammer is very similar to the Hanging Man candlestick pattern. Both have similar shapes with a small body, tiny or absent upper wick, and a long lower wick. The only difference between them is the nature of trends in which they appear. If a pattern appears in an upward trend and indicates a bearish reversal, it is Hanging Man.

Market Sentiment and Price Action

You can use reversal patterns to help identify shifts in trend. The chart shows a hammer candlestick on the daily scale at point A. After two weeks of trending lower, the stock reaches a support level and a hammer appears. The hammer candlestick is also considered more reliable when it forms at a price level that’s been shown as an area of technical support by previous price movement.

A hammer Candlestick pattern generally appears when a new low is created for a specific currency pair. The wicks of hammer candlesticks measure twice as much as their bodies. The three inside down candlestick pattern consists of three candlesticks.

The Marubozu candle is a healthy bearish candlestick with no upper or lower wicks. This candle represents increasing selling pressure in the market, and bulls are getting weaker, so they can’t even be able to let the price high anymore. The three outside down pattern consists of three candlesticks. The second is a healthy bearish candlestick bigger than the bullish candle, which covers the first candle, so it’s like a bearish engulfing pattern.


Mostly bearish engulfing candlestick patterns don’t have wicks, but sometimes a little wick is okay. No wick or little wick indicates the power of the bears. The three inside up candlestick pattern consists of three candlesticks.

The larger the difference in size of the two candlesticks the stronger the sell signal. As mentioned earlier, candlestick bullish reversal pattern occurs when a candlestick is formed in a downtrend. And this signals the end of selling spree and opens up the chance to make purchase. The hammer formation is one of the most reliable reversal patterns within the entire library of candlestick patterns. It is also one of the easiest to recognize, and simplest to trade. But although it’s a fairly simple pattern to trade, it does require a good deal of discipline and fortitude to execute properly.

Why Is an Inverted Hammer Bullish?

Because it is a reversal pattern, there must be something for it to reverse prior to the appearance of the pattern. It is not necessary for the market to be in an uptrend, but there must be a recognizable price rise preceding the appearance of the pattern. Even if the hammer is a bullish pattern, its colour doesn’t matter. However, if the candlestick is green , the signal is stronger. Another tricky point is that until a buyer waits for the formation of the confirmation candlestick, they miss a good entry point. Entering the market after the second candlestick provides a higher risk/reward ratio, where the risk can exceed the ratio dramatically.

You’ll likely see a total in momentum, with the second candle erasing gains. Finally, the third is a large red candle that closes around the middle of the first candle. Then the second is a small-bodied candle that extends above the first and has two long wicks. I became a self-made millionaire by the age of 21, trading thousands of Penny Stocks – yep you read that right, penny stocks. I’m extremely determined to create a millionaire trader out of one my students and hopefully it will be you. I help new students develop these habits in my Trading Challenge.

A number of signals came together for IBM in early October. After a steep decline since August, the stock formed a bullish engulfing pattern , which was confirmed three days later with a strong advance. The 10-day Slow Stochastic Oscillator formed a positive divergence and moved above its trigger line just before the stock advanced. Although not in the green yet, CMF showed constant improvement and moved into positive territory a week later.

A reversal candlestick pattern is a bullish or bearish reversal pattern formed by one or more candles. One can use these kinds of patterns to identify a potential reversal in assets’ prices. Reversal patterns refer to the formation of candlesticks which shows the end of the existing trend .

In all of these instances, the hammer candle pattern has a bullish implication, meaning that we should expect a price increase following the formation. They are often considered signals for a reversal pattern. As with all candlestick patterns, four data points are used in their construction. The open is near the top of the pattern as is the close.

The third candle confirms the change in trend by closing above them. We can open buying positions after the completion of this pattern. This candle mainly forms at the bottom of the downtrend and shows that bears are getting weaker and unable to close the price lower.

Whenever you spot a Hammer candlestick pattern, you should go long because the market is about to reverse higher. The first and the third candles both have a large body, while the middle one is rather small. The small second candle shows that the selling pressure has become weaker. Its distance from the other two candles signals that selling pressure has possibly been exhausted.

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