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Learning About the Stock Market Using The Hammer Signal

 

Learning about the stock market for personal stock market investing can be very costly if not approached in the right manner.  Attributes built into candlestick charts greatly reduce the potential of losses while learning about the stock market.  The knowledge conveyed in just one of the 12 major signals helps investors understand the dynamics of what makes price move.  This is true for investors that are just learning about the stock market all the way up to experienced traders. The candlestick charts are in use today because they have worked effectively throughout  the centuries.  Japanese Rice traders recognized that  investor sentiment operates in reoccurring patterns. They recognized candlestick charts provided patterns that would reoccur as a trend was about ready to reverse.  This became valuable information.  The psychological elements that are incorporated into the major candlestick signals makes learning about the stock market  easier and more profitable.

Out of a universe of 50 to 60 candlestick reversal signals, it has been found that only 12 of the signals require attention.  These 12 major signals will provide more trade situations than  most investors will be able to utilize.  The insights gained from dissecting each of the 12 major signals becomes a valuable tool for learning about the stock market.  The common complaint for most investors learning to read candlestick charts was  there were too many candlestick signals.    When learning  the stock market, an investor wants a proven  investment technique. Candlestick charts produces a very strong trading platform the candlestick signals have proven themselves to work. The question is not whether they work or not, the question is whether somebody can learn how to use them correctly.  The Candlestick Forum is a stock market education site that takes candlestick charts and individual candlestick signals and reduces the information  down to the basic elements. If each signal is dissected and studied, the information that the signal conveys will become a powerful investment tool for the rest of your life. The knowledge presented in Candlestick Charts makes learning  the stock market, or any other trading market, much easier to understand.  Each signal provides an immense amount of information.

One of the most visually compelling signals is the Hammer signal. The hammer signal is easily recognized by the lower shadow ( the tail ) protruding to the downside after an extended downtrend.

HAMMERS AND HANGING MAN

 

Description

The Hammer is comprised of one candle. It is easily identified by the presence of a small body with a shadow at least two times greater than the body. Found at the bottom of a downtrend, this shows evidence that the bulls started to step in. The color of the small body is not important but a white candle has slightly more bullish implications than the black body. A positive day is required the following day to confirm this signal.

Criteria

  1. The lower shadow should be at least two times the length of the body.
  2. The real body is at the upper end of the trading range. The color of the body is not important although a white body should have slightly more bullish implications.
  3. There should be no upper shadow or a very small upper shadow.
  4. The following day needs to confirm the Hammer signal with a strong bullish
    day.


Signal Enhancements

  1. The longer the lower shadow, the higher the potential of a reversal occurring.
  2. A gap down from the previous day's close sets up for a stronger reversal move provided the day after the Hammer signal opens higher.
  3. Large volume on the Hammer day increases the chances that a blow off day has occurred.

Pattern Psychology

After a downtrend has been in effect, the atmosphere is very bearish. The price opens and starts to trade lower. The bears are still in control. The bulls then step in. They start bringing the price back up towards the top of the trading range. This creates a small body with a large lower shadow. This represents that the bears could not maintain control. The long lower shadow now has the bears questioning whether the decline is still intact. A higher open the next day would confirm that the bulls had taken control.

Training Tutorials
The Major Signals Educational Package  has over 8 Hours of training for trading Candlestick Signals or The Hammer  individual training video available for Quick Download.

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