What is the hammer pattern?

The hammer pattern is a candlestick pattern that offers a bullish buy signal for the given security. This pattern will come at the end of a large number of down days.

In order for this pattern to be a bullish signal it needs to come after weakness in the stock. If the stock has not been going down this might not offer a bullish signal.

The hammer is the last candlestick in the picture. It occurs when the markets open up and start going lower like they did the days before. This time however the bulls fight back and start pushing the stock upward.

The day finishes up and that is a signal that the bears have lost power and the bulls have gained streagth.

If the hammer pattern does not occur after a downward movement it may not be a bullish signal. In fact if this pattern forms during a bullish rally it might actually be a hanging man or a bearish signal.

Why does this pattern work? When the day starts the stock opens up and the bears push it down even lower. This shows that the downtrend is still strong. However, the bulls are able to recapture the day and push the stock all the way up.

This shows that the bulls have managed to take over the market at least in the short run. If the bulls continue to lead the market it can be a massive turnaround in the stock.

Other Candlestick Patterns

Knowing how to read candlesticks can give you an edge in the stock market. Here are a few other patterns to consider when trading.

Hanging Man - The same pattern, only it occurs during an up trend

Rising 3 Method - A bullish indicator

Inverted Hammer - Another trend reversal pattern

TOP Of Hammer Pattern