Candlesticks are the most famous type of charting technique , there are several others like bar charts , line charts etc but no other charting technique is so useful as the candlestick charts , candlesticks are famous because they are easily distinguishable and provide the low high close and open data in a single candlestick in an easy manner , candlestick charts are an invention of japanese people, all traders must thank the Japs for this beautiful invention.
What are Candlestick patterns
Candlesticks together form bullish or bearish patterns on a technical chart ,there are literally hundreds of Candlestick patterns , there are different categories of candlestick patterns like single candlesticks involving just one candle like hammer pattern , marubuzo , shooting star , then there are patterns involving two candlesticks like bullish engulfing , bullish harami , then there are patterns involving 3 candles also like morning start and evening star , today we will study the hammer candlestick pattern in depth.
What is Hammer Candlestick pattern ?
Hammer candlestick pattern is a bullish candlestick pattern involving only one candlestick , it is a single candlestick with a very long lower wick and a very small or no upper wick , a green body or closing price above the opening price is most favourable for the hammer pattern , the hammer candlestick is depicted in the picture above, look at the long lower wick or tail with no upper wick the length of the lower wick is generally twice the size of the candlestick body that is twice the price difference between opening and closing price , a bullish market trend generally follows the hammer candlestick.
Login behind the Hammer candlestick pattern –
The most important thing is to learn the logic behind the candlestick patterns on a technical chart , it is almost useless to remember the names as names won’t help you make money but the logic behind this candlestick formation will . The long lower wick denotes that the bears tried their heart out to sell as much or short as much as they can but at last the bulls stepped in and absorbed all the supply by the bears thus lifting the market up and causing a long lower wick the bulls even managing to close the candlestick in green color signifies the authority of the bulls thus bolstering the strength of the bulls on that particular day and scaring the wits out of bears .
Of course a hammer candlestick pattern occurring alone and anywhere randomly has little to no significance , a hammer candlestick pattern needs to occur at an area of value on a technical chart that is at a support , trendline or a moving average acting as a support ,a hammer candlestick pattern at a support is one of the best bullish indicators that you will every find.
Real world examples of Hammer candlestick pattern –
Above is a technical chart of Bajaj Finance on NSE look at the hammer candlestick which occurred precisely at a support level which was previously a resistance , the lower wick is twice the size of the body and establishes the dominance of the bulls , see how the next day was a gap up and how quickly the stock moved up in just a few days.
Above is another chart of Larsen and turbo on NSE , the orange area marks a previous support level , the stock fell to that previous support look at the large bearish candles before the hammer candlestick , the hammer candlestick single handedly stopped the bears and established the dominance of bulls , look at how easily market climbed in next few days after the hammer candlestick pattern.
Above is the last example of UPL on NSE , it formed a beautiful hammer pattern at support but the stock didn’t quite showed a bullish trend in nexf few days instead it tested the support a couple of times more , this shows that no pattern will play out in a text book fashion everytime , there has to be proper stop loss and risk management startegy to cope with failure of patterns due to circumstances unkown to a retail stock trader.