Trading signal: Hammer pattern identifies rebound
The Hammer pattern occurs at the end of a down-trend. It often reflects a change in the sentiment of the market. The pattern works well for market indices (FTSE, DAX, AEX…) and individual stocks.
|Components||: Hammer candlestick pattern|
|Time frame(s)||: All|
|Usable for buy signals||: Yes|
|Usable for short sell signals||: No|
The Hammer candlestick pattern consists of four candles. The two first candles need to be bearish candles. The third candle needs to be a Hammer candle. The fourth candle must be a bullish candle. The open of the fourth candle must be above the close of the Hammer candle.
When to open a position?
As soon as the Hammer pattern is confirmed by the termination of the fourth candle a long position is bought at the market price. The Hammer pattern does not provide short sell signals.
This example shows a Hammer pattern on the S&P 500 chart in a 60-minute time frame.