This candlestick pattern is called a hammer, well because it looks like a hammer. This pattern signals that the buyers have regained control from the sellers.
The hammer and its brother the shooting star are quite obvious, you can’t really miss them. The hammer consists of an open and close near the top of a long downward wick. The wick of the candle is at least twice the length of the body.
What does it mean
To understand why this is bullish you have to understand what is happening.
- The price opened near the top and the sellers then stepped in driving the price all the way to the bottom – the low.
- The buyers subsequently stepped back in driving the price back up, closing above the opening price.
This essentially tells you that the buyers won the tough of war; causing the sellers to step over the opening line. Another way of looking at it is that the buyers saw the low as a point of value. Where the price was considered to low to pass up the opportunity of buying.
Always look at the big picture
I have discussed this in a previous article about the limitations of candlestick patterns. When analysing the price movement of any asset you must take the overall trend into consideration. Not doing this could result in you “betting” on a losing horse.