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Understanding Candlesticks_4. Hammer and Hanging Man Candlesticks

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Published by yaniv, 2022-06-09 08:24:23

Understanding Candlesticks_4. Hammer and Hanging Man Candlesticks

Understanding Candlesticks_4. Hammer and Hanging Man Candlesticks

Lesson 4: Hammer and Hanging Man Candlesticks

A hammer is a bullish reversal signal. It has a small real body, a very small or
no upper shadow, and a long lower shadow.

For it to be a proper hammer, the lower shadow needs to be at least twice the
size of the real body. As this is a bull signal, we will only look for it in a downtrend.

Let’s take a look at how the hammer forms.
Bears were in charge at the start of the session and pushed the price lower. This
new low was rejected by bulls, who pushed the price back up creating a long lower
shadow. This is how a typical hammer looks.

But an even stronger reversal signal is a hammer - where bulls manage to
push the price above the session’s opening and close at the session’s high. A
hammer, seen after a strong down-move at support, is a very strong reversal signal.
It shows that bulls may be ready to take control.

The hanging man looks exactly the same as a hammer. The only difference is
that we can find it in an up-trend. A lot of trading literature says that the hanging
man is a bearish reversal signal. And although it may be true in some cases, I would
like you to think a little bit about what this candlestick really shows you.

Remember that the hanging man forms the same way as the hammer. After
the price has been trending up for a while, bears started to push the price lower, the
bulls managed to push the price up, closer to its open, creating a long lower shadow.

Does this really seem like bears are ready to take control over the trend? I am
not saying I would go along straight away after seeing a hanging man, but I would
definitely be careful about my short positions, as this could signal trend continuation.

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