Basics of Trading Hammer Candlestick Patterns

gravestone doji
doji pattern

Traders use candlestick patterns to identify trend reversals, trend continuation, and market sentiment. More over, traders should use proper risk management techniques, such as stop-loss orders, to minimize losses. By following these tips and tricks, traders can make more informed decisions when trading hammer candlestick patterns. After a decline, a black/black or black/white combination can still be regarded as a bullish harami.

Although in isolation, the Shooting Star formation looks exactly like the Inverted Hammer, their placement in time is quite different. The main difference between the two patterns is that the Shooting Star occurs at the top of an uptrend and the Inverted Hammer occurs at the bottom of a downtrend . When a hammer appears, it is indicating that the market is trying to seek a bottom.

trend reversal

Ladder bottom/top are reversal patterns composed of five candlesticks that may also act as continuation patterns. The third white candle overlaps with the body of the black candle and shows renewed buyer pressure and a start of a bullish reversal, especially if confirmed by the higher volume. Otherwise, it’s not a bullish pattern, but a continuation pattern. Here, we go over several examples of bullish candlestick patterns to look out for. When the low and the open are the same, a bullish, green Inverted Hammer candlestick is formed and it is considered a stronger bullish sign than when the low and close are the same . It is important to emphasize that the doji pattern does not mean reversal, it means indecision.

What Is the Most Bullish Candlestick Pattern?

The shadows on the Doji must completely gap below or above the shadows of the first and third day. Other types of candlestick patterns to be aware of include the Hammer, the Inverted Hammer, the Morning Star, the Evening Star, and the Three Line Break. This doji is a bearish pattern that suggests a reversal followed by a downtrend in the price action. The size of the doji’s tail or wick coupled with the size of the confirmation candle can sometimes mean the entry point for a trade is a long way from the stop-loss location. Doji and spinning top candles are commonly seen as part of larger patterns, such as the star formations by technical analysts. A spinning top also signals weakness in the current trend, but not necessarily a reversal.

How to trade using the inverted hammer candlestick pattern –

How to trade using the inverted hammer candlestick pattern.

Posted: Fri, 04 Sep 2020 16:07:11 GMT [source]

Both patterns need volume and the following candle for confirmation. It is perhaps more useful to think of both patterns as visual representations of uncertainty rather than pure bearish or bullish signals. These are just a few examples of the candlestick patterns traders use to analyze and predict market movements. Recognizing and understanding these patterns can help traders make more informed decisions and improve their trading strategies. Inverted Hammer Screener to find a list of stocks with inverted hammer candlestick pattern.

The lines at both ends of a candlestick are called shadows, and they show the entire range of price action for the day, from low to high. The upper shadow shows the stock’s highest price for the day, and the lower shadow shows the lowest price for the day. The longest patterns we’ll cover in this article are triples, which are made across three consecutive periods. Triple candlestick patterns are often seen as some of the strongest signals of an upcoming move.

This is followed by considerable pressure, which wasn’t enough to bring the price down below its opening value. The supplementary educational materials about special candlesticks and suitable strategies, using these two beneficial candles, are available on It is supposed that trend will change its direction after either of them have formed. Hanging Man candle will be created on an upward trend, while Inverted Hammer candle will be formed on a downward trend. Mr. Pines has traded on the NYSE, CBOE and Pacific Stock Exchange. In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives.

The Doji candlestick pattern is characterized by its cross, inverted cross, or plus sign shape, which reflects that the open and close prices are the same. It has very little or no real body, while the upper and lower shadows may be of varying sizes. Alone, the Doji candlestick is a neutral pattern but may also feature in a number of important patterns. A dragonfly doji is a candlestick pattern that signals a possible price reversal.

What Is a Doji Candle Pattern, and What Does It Tell You?

This accounts for incorporating significant bullish retracement and the resultant signal is most probably a promising entry signal. Although a shadow that is twice the length of the body is confirmation in most cases, its body may sometimes be very small and its shadow is small as well. No matter how much selling activity occurs, a neutral state occurs as buying power exerts an equal and opposite increase towards the lower level.

technical traders

The bearish inverted hammer candlestick pattern is often referred to as a shooting star. While it resembles the regular inverted hammer, it signifies a possible bearish reversal rather than a bullish one. In essence, shooting star candlesticks are inverted hammers that appear at the end of an uptrend. They are created when the opening price is higher than the closing price, and the wick indicates that the upward market momentum may be running out of steam. An inverted hammer candlestick is a another pattern that forms at the end of a downtrend, indicating a potential trend reversal. It has a small body with a long upper shadow and little to no lower shadow, showing that buyers initially pushed the price up, but it was eventually dragged back down.

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After a decline, the hammer’s intraday low indicates that selling pressure remains. However, the strong close shows that buyers are starting to become active again. In Jan-00, Sun Microsystems formed a pair of bullish engulfing patterns that foreshadowed two significant advances.

Other techniques, such as other candlestick patterns, indicators, or strategies, are required to exit the trade, when and if profitable. A doji (dо̄ji) is a name for a trading session in which a security has open and close levels that are virtually equal, as represented by a candle shape on a chart. Based on this shape, technical analysts attempt to make assumptions about price behavior. Doji candlesticks can look like a cross, inverted cross, or plus sign.

The gravestone doji shows up in a series of candlestick patterns. The opening, closing, and high prices may be equal or nearly the same. When this happens, the possibility of a trend reversal is likely with a new bearish trend on the horizon. In order to take advantage of the trade, make sure you confirm there’s a trend reversal on the way after you identify the pattern. Then, enter your position once the next candle closes below the closing price of the candlestone doji.

To help them achieve this, they use technical analysis tools like candlestick patterns to make more informed decisions. One of the most popular candlestick patterns is the hammer candlestick, which traders use to spot potential trend reversals. There are a great many candlestick patterns that indicate an opportunity to buy.


The main difference between the morning doji star and the bullish abandoned baby are the gaps on either side of the doji. However, selling pressure eases and the security closes at or near the open, creating a doji. Following the doji, the gap up and long white candlestick indicate strong buying pressure and the reversal is complete. Just as with the bullish engulfing pattern, selling pressure forces the security to open below the previous close, indicating that sellers still have the upper hand on the open. However, buyers step in after the open to push the security higher and it closes above the midpoint of the previous black candlestick’s body. Further strength is required to provide bullish confirmation of this reversal pattern.

The emergence of TradingView, a leading social network and charting platform for traders and investors, has dramatically changed the landscape of technical analysis. This platform offers many tools and indicators that help traders make informed decisions. One such powerful addition to TradingView Scripts is the Auto Candlestick Patterns Detector . In this article, we’ll discuss the basics of trading hammer candlestick pattern and how you can use them. When encountering an inverted hammer, traders often check for a higher open and close the next day to validate it as a bullish signal.

Traders may take this as a sign that the recovery will turn into a lasting uptrend. A bearish engulfing arises when a bullish stick is then swallowed by a subsequent bearish one. Like spinning tops, this can tell you that the bulls and bears have cancelled each other out by the end of the session. Candlesticks can be used to examine price action over any timeframe, from one second up to an entire year.

Look for inverted hammer doji candlestick reversal in securities trading near support with positive divergences and signs of buying pressure. Candlesticks provide an excellent means to identify short-term reversals, but should not be used alone. Other aspects of technical analysis can and should be incorporated to increase reversal robustness. Below are three ideas on how traditional technical analysis might be combined with candlestick analysis. A doji is a trading session where a security’s open and close prices are virtually equal.

bullish reversal

The piercing pattern is made up of two candlesticks, the first black and the second white. Both candlesticks should have fairly large bodies and the shadows are usually, but not necessarily, small or nonexistent. The white candlestick must open below the previous close and close above the midpoint of the black candlestick’s body. A close below the midpoint might qualify as a reversal, but would not be considered as bullish. Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the first part of the session, bidding prices higher.


The dragonfly doji is a candlestick pattern stock that traders analyze as a signal that a potential reversal in a security’s price is about to occur. Depending on past price action, this reversal could be to the downside or the upside. The dragonfly doji forms when the stock’s open, close, and high prices are equal. It’s not a common occurrence, nor is it a reliable signal that a price reversal will soon happen. The dragonfly doji pattern also can be a sign of indecision in the marketplace. For this reason, traders will often combine it with other technical indicators before making trade decisions.

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