Submitted by: Dragan Lukic
Forex trading course
segment we will focus on a candlesticks which Forex traders see on a daily basis; the hammer. Throughout your
you will also come across this type of candle line so an understanding of its characteristics and how they can be used in your Forex trading strategy is essential.
Due to its shape that consists of a head and a handle, the hammer has logically acquired this name. Simply put, a hammer is a candlestick with a long lower shadow and a close near the session’s high. The session can be in any time frame such as 1 minute, 2 minutes, 1 day etc. The real body makes up the upper part (with the close near the session’s high). The actual colour of the real body does not matter. However, some Forex traders do consider a hammer to be more bullish if the real body colour is white.
In your Forex trading course you will learn that the hammer’s long shadow also plays an important role when analysing the state of the market. The long shadows mirrors the fact that the market experienced a sell-off or a decline during the day but then the bulls gained control and closed the session off near the session’s high. Note that unless the shadow is double the height of the real body, the candle you are looking at is not a hammer. At the same time, if the candle has a long upper shadow the Forex market is telling you that the session has closed well of its highs and therefore that candle is not a hammer. This is a concept that you must focus on during your Forex training.
Also note that a hammer only appears at the end of a market down-trend, not an up-trend. For example, if you are analysing the Forex on a daily chart and spot a candle with features as described above, you have found a hammer. This is the point where the bulls start to gain control. When we think about it, the fact that the bulls have gained control and closed the session of near its high, we logically assume that the market is prone to changing; and rightly so. However, do not make the mistake of investing your money just because you have seen a hammer. Other chart characteristics are necessary to do this but spotting the hammer is the first step. A hammer does not mean that the trend will change direction, it means that the trend is prone to change. The trend may even pause for a few sessions while it builds up more power and continue in the original direction. If you have invested your money into the trend reversing upwards, this is the point where you need to exit the trade straight away.
Throughout your Forex trading course you should really pay close attention to this symbol but do not take it for granted. Whilst the correct analysis of the hammer, coupled with other Forex trading techniques can deliver fantastic results, equally a lack of attention, focus, analysis or even respect for the hammer can lead to substantial losses. If your analysis proves to be incorrect, you must ensure that you exit your trade to protect your investment. Simply, analyse more charts, try to spot the hammer and paper trade the Forex i.e. pretend to trade with money.
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