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#UNDERSTANDING THE HIDDEN MARKET PSYCHOLOGY IN CANDLESTICKS
The Hammer candlestick pattern is a bullish reversal signal that indicates a possible change in price direction. It usually appears at the end of a downtrend and suggests that buyers may be taking control. Its name comes from its shape, which resembles a hammer with a long handle and a small head.
How to Identify a Hammer
The Hammer consists of a single candle with three main characteristics:
Small Body: The difference between open and close is minimal, and it can be bullish (green) or bearish (red).Long Lower Shadow: It should be at least twice the size of the candle body, indicating rejection of low levels.Little or No Upper Shadow: Ideally, there should be no upper shadow, but a small one may still be acceptable.
For it to be a valid Hammer, it must appear after a downtrend. If it arises after an uptrend, it is known as a "Hanging Man" and can be a bearish signal.
Psychology of the Hammer
Before its formation, the market is typically in a downtrend, dominated by sellers. On the day it appears, prices open, drop significantly, and then recover, closing near the opening price. This recovery indicates that buyers have intervened strongly, rejecting low prices and weakening sellers.
Although the Hammer is a signal of possible reversal, it is advisable to wait for confirmation in the following candles. A bullish close or an upward gap in the next session increases the likelihood that the trend change will solidify.
The Hammer candlestick pattern is a bullish reversal signal that indicates a possible change in price direction. It usually appears at the end of a downtrend and suggests that buyers may be taking control. Its name comes from its shape, which resembles a hammer with a long handle and a small head.
How to Identify a Hammer
The Hammer consists of a single candle with three main characteristics:
Small Body: The difference between open and close is minimal, and it can be bullish (green) or bearish (red).Long Lower Shadow: It should be at least twice the size of the candle body, indicating rejection of low levels.Little or No Upper Shadow: Ideally, there should be no upper shadow, but a small one may still be acceptable.
For it to be a valid Hammer, it must appear after a downtrend. If it arises after an uptrend, it is known as a "Hanging Man" and can be a bearish signal.
Psychology of the Hammer
Before its formation, the market is typically in a downtrend, dominated by sellers. On the day it appears, prices open, drop significantly, and then recover, closing near the opening price. This recovery indicates that buyers have intervened strongly, rejecting low prices and weakening sellers.
Although the Hammer is a signal of possible reversal, it is advisable to wait for confirmation in the following candles. A bullish close or an upward gap in the next session increases the likelihood that the trend change will solidify.
Disclaimer: Includes third-party opinions. No financial advice. May include sponsored content.Ā See T&Cs.
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