Hammer is a one candle pattern that occurs in a downtrend wh en bulls make a
start to step into the rally. It is so named because it hammers out the
bottom. The lower shadow of hammer is minimum of twice the length of body.
Although, the color of the body is not of much significan ce but a white candle
shows slightly more bullish implications than the black body. A positive day i.e.
a white candle is required the next day to confirm this signal.
Criteria
1. The lower shadow should be at least two times the length of the
body.
2. There should be no upper shadow or a very small upper shadow.
3. The real body is at the upper end of the trading range. The color of
the body is not important although a white body should have
slightly more bullish implications.
4. The following day needs to confirm the Hammer signal with a
strong bullish day.
Signal enhancements
1. The longer the lower shadow, the higher the potential of a reversal
occu rring.
2. Large volume on the Hammer day increases the chances that a blow off
day has occurred.
3. A gap down from the previous day's close sets up for a stronger reversal
move provided the day after the Hammer signal opens higher.
Pattern psychology
The market has been in a downtrend, so there is an air of bearishness. The
price opens and starts to trade lower. However the sell-off is abated and
market returns to high for the day as the bulls have stepped in. They start
bringing the price back up towards the top of the trading range. This creates a
small body with a large lower shadow. This represents that the bears could not
maintain control. The long lower shadow now has the bears questioning
whether the decline is still intact. Confirmation would be a higher open with
yet a still higher close on the next trading day
The hanging man appears during an uptrend, and its real body can be either
black or white. While it signifies a potential top reversal, it requires
confirmation during the next trading session. The hanging man usually has
little or no upper shadow
Statistics: Posted by admin — Sun Jan 13, 2013 2:07 am
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