Technical analysis of price trends is the basis for traders’ strategies in financial markets. Analyzing price trends and patterns is a process that involves using a number of indicators to understand the price movements. The hammer candlestick is one of the most popular indicators traders use. We will be discussing how to trade the Hammer Candlestick Pattern in this article.
What is a pattern for hammer candlesticks?
The trend reversal of the bullish price pattern is predicted by the hammer candlestick. This parameter can be used for many financial assets including stocks, forex and crypto assets.
It can be used by traders to identify trend reversals. They also have the ability to trade with hammer candlestick patterns.
What does the hammer candlestick signify?
The bullish reversal pattern of the hammer candlestick predicts a rise in price following a fall. The candlestick’s shape is reminiscent of a hammer, with a large body and a tail/wick that runs downwards. These figures will help you identify the pattern of the hammer candlestick.
Candlestick Bullish Hammer
Bearish Hammer candlestick
This formation shows that the opening and closing prices are very close. This indicates that sellers pull the price down first, then buyers enter the market pushing the price higher before close.
The hammer candlestick pattern of a hammer is referred to as a bullish one if the closing price is greater than the opening price. If the closing price is lower than the opening, the hammer candlestick patterns is called a bearish-hammer.
The body of a bullish candlestick is green, while that of a bearish one is red. The pattern is indicative of a bullish movement, regardless of body colour.
Understanding hammer candlestick
The hammer candlestick pattern, which is a symbol of the demand and supply for crypto assets, can be seen closely. You can see it in the way that the candle is formed. The longer the wick, the more sellers there are, which means that the price is being pushed down by selling pressure. However, as the downside risk of the price has exhausted, the price tends upwards and buyers take over, and a trend reversal occurs. This causes the price to rise back to the initial level or higher. The hammer candlestick usually appears after a drop in the price.
A hammer candlestick is a sign of a trend reversal in market sentiment and price movement. You can confirm this by watching the price momentum after the formation of this candlestick.
Learn about: Trend Analysis and Understanding Crypto Asset Buying Patterns
Trading Strategies using Hammer Candlestick
The hammer candlestick can be used by traders to plan entry and exit into security. Below are some tips for traders using the hammer candlestick pattern.
Strategy of resistance and support
The price levels at the lower and upper ends are support and resistance, respectively. These levels are difficult to break, but they can be broken once there is significant price movement. To break support or resistance, there must be some news or an event. The trader can use price action to predict the price and a hammer candlestick while trading can be used as a confirmation indicator of a bullish tendency.
Strategy of resistance and support
(Source: Bybit.com)
The given chart shows that support and resistance are located around 2330. This level is broken by buying pressure, and then falls back to the same point. To buy, traders will need confirmation from the hammer candlestick.
Intraday trading using moving averages
This strategy requires a trader to identify a bullish pattern using exponential moving averages. Any bearish correction can then be considered a buying opportunity once the trend has been identified. This can be confirmed with the appearance of a candlestick hammering followed by a bearish price movement.
Strategy at the top
The first step in this strategy is to identify the bottom. A new low is a low that breaks all short-term lows. An indecision candle will be visible in the charts when the price reaches the new low. This is a sign that sellers are trying to lower the price. This is a sign of a bullish reversal if it is followed by the formation the hammer candlestick. To take advantage of price increases, the trader may consider entering at this stage.
Conclusion
The hammer candlestick pattern can be used as a reliable indicator for trend reversals. It also complements other price action indicators such as moving averages or trends. This information can be very helpful for traders when devising their strategies. Don’t delay, get your trading hat on and trade in your favorite crypto assets. Log on to ZebPay.
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