A hammer is a candlestick pattern that forms at the end of a downtrend and indicates a high reversal.
The actual body of this candle is small and above and below the shade, which should be more than double the actual value. This lamp painting pattern has no high or low.
The psychology behind a candle formation is that the price has opened and selling has pushed the bottom of the market.
Suddenly, buyers entered the market and pushed the price higher, closing the trading session above the opening price.
This led to the establishment of a bullish pattern indicating that buyers have returned to the market and the downtrend may be ending.
Traders can go long if a bullish candle forms the next day and place a stop at the bottom of the hammer.
Below is an example of Hammer’s lamp pattern:
Hammer candle pattern
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