Posted in Finance, Accounting and Economics Terms, Total Reads: 244
Definition: Hammer Pattern
Hammer is a pattern in the price security when the securities trading price falls too low with respect to opening price in a day, but later the price picks up and closing above or close to the opening price of security. This price pattern forms the hammer shaped candlestick. The fall down in the market price suggests that the price is going to be bottom down. In a market, Investor takes position according to bearish/ bullish the market. In this situation, it simply shows that bullish investors/ bulls are strengthening. It also indicates trend reversal.
A security experiences short selling during hammer candlestick period. But at the end of period (week/day), it recovers close/ above the previous market price. This indicates that market is going towards the position of hammer.
It is important to identify the real hammer. The rule of two applies to real hammer. Investors should wait for another candle before stating trading in the market. However, it is not worthwhile to wait for an entire period of week for another candle because there is a possibility of losing out of an opportunity.