Candle

The Candle indicator allows you to spot specific patterns, such like bullish or bearish hammers.

Hammer pattern

Wick and Pin

First, you need to select if you are looking for a bullish or bearish hammer. For a bullish hammer, the upper wick of the candle is called the "pin". The opposite, on the lower part of the candle, is the "wick". For a bearish hammer, the lower wick of the candle is the "pin" and for the top of the body, it's the "wick". See next illustrations.

We are looking for reversal bullish hammers, this is why we consider the top wick as the pin here.
We are looking for a reversal bearish hammer, this is why we consider the top as the wick here.

Strict and lazy hammer

Bull strict candle hammer

We can consider 2 types of hammers. A 'strict' bullish hammer, is a candle with a green body, with a close price of the candle higher than the open price.

Bull lazy candle hammer

However, you can be less restrictive, and choose to consider a 'lazy" hammer, where the body can also close red.

Cross wick

You can also decide how much candles on the past should not have a higher or lower price than your hammer wick.

You decide that, during the past 10 candles, the price can't be lower than your considering hammer. The price here did cross the hammer wick in the past, so the bullish hammer is not valid for a long.

Example:

Candle hammer setup example
In this example, we are looking for a strict bullish hammer (green body only) to long, with a minimum wick size of 60% of the candle, a max pin size of 10%, and also we don't want that the previous 5 candles had a lower price than our hammer wick.
Valid bullish hammer, a long signal is triggered once the hammer candle closes.

Notes

  • Bullish Hammer: This pattern occurs at the end of a downtrend and features a candle with a small body at the top and a long lower wick (at least twice the length of the body), suggesting strong buying pressure and a potential reversal upward.

  • Bearish Hammer (or Shooting Star): This appears at the end of an uptrend and has a small body at the bottom with a long upper wick, indicating selling pressure that could lead to a downward reversal.

  • Volume and Other Indicators: Use volume as a confirmation tool; higher volume on the day a hammer or pin bar appears can enhance the reliability of the pattern. Additionally, using oscillators like RSI or MACD can help confirm whether the momentum is shifting from bearish to bullish or vice versa.

  • Avoid Trading in Choppy Markets: These patterns are less reliable in sideways or highly volatile markets. Focus on using them in trending environments where they can signal meaningful reversals or continuation.

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