What are Hammer Candlesticks in Trading?

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What are Hammer Candlesticks in Trading? Blog Image


Nifty recently ended 95 points higher to cross above the key hurdle at 19,850 level and form a hammer candlestick pattern on the daily chart.

About Hammer Candlesticks in Trading

  • It is one of the most popular candlestick patterns traders use to gauge the probability of outcomes when looking at price movement.
  • A hammer is a price pattern in candlestick charting that occurs when a security trades significantly lower than its opening but rallies within the period to close near the opening price.
  • This pattern forms a hammer-shaped candlestick, in which the lower shadow is at least twice the size of the real body.
  • The body of the candlestick represents the difference between the opening and closing prices, while the shadow shows the high and low prices for the period.
  • The hammer candlestick occurs when sellers enter the market during a price decline. By the time the market closes, buyers absorb selling pressure and push the market price near the opening price.
  • The close can be above or below the opening price, although the close should be near the open for the real body of the candlestick to remain small.
  • Analysts view it as a potential bullish trend reversal indicator, mainly appearing at the end of a downtrend.
  • It could be used as a leading intraday indicator to signal a change in bullish/bearish momentum.

Q1) What is Nifty?

NIFTY is a market index introduced by the National Stock Exchange (NSE). It is a blended word – National Stock Exchange and Fifty coined by NSE. Nifty was established in 1996 under the name CNX Nifty. Further, in 2015, it was renamed Nifty 50. NIFTY 50 is a benchmark-based index and the flagship of NSE. It represents the performance of the 50 largest and most actively traded stocks listed on the NSE.

Source: Stock Market Highlights: Nifty surpasses 19,850 hurdle to form hammer candlestick. What traders should do on Wednesday