Hammer and Reversal Candles in Technical Analysis
The Hammer candle is one of the most famous reversal candles and usually appears at the end of a downtrend. Its shape is characterized by a small body at the top and a long lower shadow (at least twice the length of the body), indicating that sellers pushed the price down during the session, but buyers managed to push it back up before the close, which is a signal for a potential bullish reversal.
For the Hammer candle to be strong, it is preferable that it comes after a clear decline, and it is advisable to confirm it with a bullish candle afterward.
Reversal candles are patterns that consist of one or more candles and indicate a potential change in direction. Among them are also:
Hanging Man candle: resembles the Hammer but comes after an uptrend, indicating a potential bearish reversal.
Engulfing candle: consists of two candles, where the second candle engulfs the body of the first, and serves as a strong signal for reversal.
Morning Star / Evening Star pattern: consists of three candles and is considered one of the strong reversal patterns.
Understanding these candles and using them with support and resistance or indicators increases the strength of the analysis and the likelihood of trade success.
