This is a bullish Signal If Occurs after a significant downtrend. The body could be Red or Green, This Candlestick tells you to buy. This comes under Bullish Reversal Candlestick Pattern. This pattern has no significant if formed at uptrend. This doesn’t indicate that Buyers have taken full control but simply indicates that buyers are trying to push the price up. It can form in any timeframe. The larger the time frame the more impactful hammer candle can be considered.
The Body of the candle should be small and tail (Lower Shadow) should be below which should atleast be twice as long as body, While Upper Shadow should be very small.
Hammer candle doesn’t alone gives the confirmation of coming buyers. Hammer should be formed after atleast 3 lower lows candles and Next Candle after Hammer should be with a higher low than the hammer candle (Higher High should also be considered as reversal confirmation)
How To Trade
If you are doing EOD analysis and you find hammer in any daily or weekly chart then you should wait for confirmation next day. After getting confirmation you trade on the scrip positionally after finding possible resistance levels.
In the chart above you can see red hammer is formed in daily chart of TVS Motors on 26th June. Next Day Candle was Lower High, from there TVS motor has started an upward journey and given good 30-35 points in few days period.
If you find hammer formation in any scrip whose prices are falling since start of market then it gives sign of reversal. This can happen in time frame. The use of pivot points for this purpose is more helpful. Suppose you found some scrip which is down by more than 1.5% or 2% and testing it’s levels at Pivot Point S2 or S3 (for some scripts this can happen at any pivot points, mainly script should be in downtrend. ), then you can keep it into your watchlist and keep tracking it for the day. If you find any hammer setup explained above then it gives you high probability to go long.
Observe the below charts.
In below chart you can see hammer has formed at R1 at around 9.45 after 3 continuous lower low candles and next candle was higher high to hammer. It gave strong signal to us to go long. Similarly same thing happened in Yes Bank Intraday Chart of 15min.
How to find such scripts
You can use our Fast Intraday Screener to find which scripts which is in downtrend since morning are near any support pivot points like S1, S2 or S3 and you can keep observing it and if you get above setup you can go long on such scripts.