What is a bullish hammer Japanese candlestick?

The Japanese candlestick, called hammer is a very characteristic candle that usually occurs at the end of a downtrend, and it is considered as a reversal pattern.

 

 

The hammer candlestick is a trend reversal single candle pattern. The Japanese candlestick anatomy of the hammer it is a small real body in which the closure is close to the opening. The ideal situation is that the lower or upper shadow is twice the size of the real body and the upper  shadow is very small or non-existent.

We can find this bullish Japanese candlestick at the end of a downtrend and it can be the signal of an upcoming uptrend.

Lots of traders are constantly looking for these Japanese candles in the charts, looking for patterns in conjunction with other indicators, support/resistance, Fibonacci levels, etc.

 

 

How do we trade a Hammer Candlestick?

Ideally we will trade a Hammer Japanese candlestick when:

  • It is placed at the end of a downtrend
  • Has no upper shadow
  • The lower shadow double the body of the candle
  • It is a green candle
  • It is located in a key point, where there is a resistance, MACD buy signal, specific fibonacci level, etc.
  • The higher the time-frame the higher the probabilities to that pattern to work
support and MACD indicator

How to place your order:

 

  • Wait for confirmation, if the next candle does new highs, that could be the confirmation.
  • Place your stop- loss well below the lower shadow. Be aware that sometimes there is a retest of this low but the hammer acts as a resistance point.

If you want to learn more about Japanese candlesticks and how to trade them: