Stock Trading for Dummies Hammer and Inverted Hammer Candlestick ChartsIn candlestick charts there are around twelve basic candlestick patterns which it is important for beginners to stock trading to know how to recognize and the strategies to adopt. In this post we will be dealing with the Hammer and the Inverted Hammer. The Hammer is a bullish reversal pattern. It consists of a single candlestick with the body at the top and the shadow below (it looks in fact the same as the Hanging Man - the difference being that you see the Hammer after a downward trend and it represents a bullish reversal i.e. the stockwill start heading up again - the Hanging Man comes after an upward trend and is a bearish reversal, the stock will start heading down). The body of the Hammer candlestick can be either red or green but green is slightly more bullish.
It has to be confirmed by a gap up and move upwards to trade above the hammer.
The shadow underneath the body needs to be at least twice the size of the Hammer's body.
Aggressive traders will make their the trade as soon as the price starts trading above the hammer high, traders who are not quite so aggressive and beginners to stock trading would be well-advised to wait for the closing price to finish above the high of the body.
See this excellent video from yourtradingcoach.com for more details.
The Inverted Hammer Candlestick Pattern.
The inverted hammer candlestick is what is known as "a bullish single candle reversal pattern". The body is either red or green or black or white (green or white is more bullish). The shadow above the body is at least twice the size of the body and the trend needs to be heading down before the inverted hammer pattern is created.
Ideally there should be a gap down leading to the inverted hammer. Trading above the candlestick pattern is seen as confirmation. The inverted hammer has a lower probability than the shooting star or hanging man and needs good confirmation before a long trade can be entered.
If the price trades above the high of the inverted hammer then shorters will get stopped out, which will help the price move higher. There is however no guarantee, only a probability. The inverted hammer is considered less bullish than the hammer.
This video on the Inverted hammer Candlestick pattern gives more details
For how to trade the inverted see video - inverted hammer candlestick
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