Definition: Get the highest rated stock from Americanbulls for this pattern >>>
The Bullish Hammer Pattern is a significant candlestick
that occurs at the bottom of a trend or during a downtrend
and it is called a hammer since it is hammering out
a bottom. The Bullish Hammer Pattern is a single candlestick
pattern and it has a strong similarity to the Bullish
Dragonfly Doji Pattern. In the case of Bullish Dragonfly
Doji Pattern, the opening and closing prices are identical
whereas the Bullish Hammer Pattern has a small real
body at the upper end of the trading range.
Recognition Criteria:
1. The market is characterized by a prevailing downtrend.
2. Then we see a small real body at the upper end of
the trading range. Color of this body is not important.
3. We would like to see the lower shadow at least twice
as long as the real body.
4. There is no (or almost no) upper shadow.
Explanation:
The overall direction of the market is bearish, characterized
by a downtrend. Then the market opens with a sharp sell
off implying the continuation of the downtrend. However,
prices suddenly turn upwards, the sell-off is quickly
abated and bullish sentiment continues during the day
with a closing price at or near to its high for the
day which causes the long lower shadow. Apparently the
market fails to continue in the selling side. This observation
reduces the previous bearish sentiment causing the short
traders to feel increasingly uneasier with their bearish
positions.
Important Factors:
If the hammer is characterized by a close above the
open thus causing a white body, the situation looks
even better for the bulls.
The Bullish Dragonfly Doji pattern is generally considered
more bullish than the Bullish Hammer Pattern and a higher
reliability is ascribed to this Doji than the Bullish
Hammer Pattern.
The reliability of Bullish Hammer Pattern is low. It
requires confirmation of the implied trend reversal
by a white candlestick, a large gap up or a higher close
on the next trading day.
