Hammer candlestick is probably one of the most familiar candlesticks to many traders. It is especially for traders who follow the price action trading because it has a very recognizable appearance. In this article, How To Trade Blog will introduce you to what a Hammer candlestick pattern is, its identification characteristics, meaning, and how to trade safely with this candle pattern.
Video on how to identify and trade with Hammer candle
What is Hammer candlestick?
Hammer candlestick is a single reversal candle pattern as strong as other patterns. They usually appear at the end of a downtrend, signaling a potential reversal.
Characteristics of Hammer candle
This special candlestick has the following characteristics:
– Its lower tail is longer than its body.
– The lower tail is at least 2 times longer than the body of the candle.
– It could be a bearish or bullish candle. Color does not matter.
– The upper tail is very small and almost absent.
Hammer candlestick meaning
Hammer candlesticks usually appear in a downtrend. It is considered by traders to be a reliable reversal signal even with only one candle. When the price is in a stable downtrend and a Hammer candle appears, the possibility of a reversal from bearish to bullish is imminent. This shows traders the weakness of the bears as the bulls have begun to engage.
How to trade binary options with Hammer candle
Hammer candlestick is a single candlestick pattern, but it is very reliable upon appearing. If it appears in a downtrend, it signals traders about the end of the bearish trend. Instead, an uptrend will be formed as soon as the candlestick pattern is clearly identified.
Combine with support
Conditions: A 5-minute Japanese candlestick chart. The expiration time of 15 minutes or above.
Open an UP order when: a Hammer candle appears at support.
Explanation: When the price enters a support zone previously formed, it will bounce up and cannot continue to fall. And the Hammer candlestick appears, indicating the end of the bearish market. The price begins to reverse from bearish to bullish when this candlestick pattern appears. Right at that point is the most secure entry point for an UP order.
Combine with RSI indicator
Conditions: A 5-minute Japanese candlestick chart and the RSI indicator. The expiration time of 15 minutes or above.
Open an UP order when: the Hammer candlestick appears in the oversold zone of the RSI indicator.
Explanation: When the price enters the oversold zone of RSI, it is unlikely for the price to continue falling. Because the current price of the asset is lower than its real value when the RSI is in the oversold zone. The Hammer candle appears as a signal to inform that the decline has ended and the price increase will appear in the near future. This is the preferred and safe entry point for UP orders of experienced traders.
Notes when using Hammer candlestick in Binary Options trading
– The Hammer candlestick is most effective when the market is in a downtrend.
– Do not use it when the market has strong news.
Although the Hammer candle is a single candlestick pattern, its effectiveness is unquestionable. It has been used by experienced price-action traders as a signal. As for you, what it looks like in the transaction process. Trade and experience on your account with Hammer candlestick pattern so that when meeting on the chart, you can give the best decision.