The Hammer Pattern is a reversal Bullish Japanese Candlestick pattern which tends to occur at the bottom of a down trend.
This pattern occurs when the opening price, the high price and the closing price of an asset are all roughly the same. There will also be a long lower shadow in evidence, which will be around double the length of the real body.
The Bullish candlestick is formed when the closing price and the high price of an asset is the same.
It is a strong formation as the bulls have completely rejected the bears and have been able to push the market price past the opening price. When the area of support was found, the bulls were able to push the price back up, close to the opening price, therefore showing that the downward bearish advance had been rejected by the bulls.
This pattern indicates a reversal in trend, and the Hammer pattern should be traded within the context of the trend or market.
A true Hammer pattern will only occur following candlesticks which are indicating a downward trend. Never try to trade the Hammer pattern from either a ranging or a neutral market as this is too risky a strategy.
How to Trade the Hammer Pattern The Hammer can be used to assist traders in visualising where demand and support is located. Following a downtrend, the Hammer pattern is a signal to investors that a downtrend could be coming to an end and therefore short positions are a possibility to be covered.
Investors should always, however, use other indicators in conjunction with the Hammer pattern to confirm potential buy hammer in binary options. Indicators like a break of a downward trendline for example would be a useful confirmation, while looking at the clues from the previous days could also assist in analysis.
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