Identification of HAMMER candlestickHammer is a candlestick(or one candlestick type pattern) which occurs when price of the security or stock fell down by a significant amount but buyers make it to close near the opening price within the candlestick period. The closing price of the candlestick can be above or below the opening price of the candlestick.Therefore, a Hammer can exhibit any color out of red or green.Either the Hammer is of Green color or it is of red color, in both colour's ,it will be considered as a Bullish candle.Though, the green is said to be more powerful bullish candlestick, but red is also a bullish candle and not a bearish one. It forms when the opening price, closing price and the highest price are approximate to each other which suggests that the upper wick and real body of the Hammer must be very short in length. The length of tail or lower shadow of this candlestick must be double the size of it's body or more than that which makes it to look like a Hammer and thus it is named so.
Hammer candlestick is considered to be more powerful if it's highest price is equal to any of open or close price (whichever is higher) i.e. if there is no upper shadow with hammer, than it will be more preferable condition.
Trading or working with HAMMER candlestickAs it is a Bullish candlestick, it occurs during the downward trend or just at the end of a downward trend proclaiming that the Bulls have entered the field and may take the situation out of Bear,s control to take the price higher.
Hammer signals the potential capitulation in the market to form the bottom by the sellers.If you are looking for the confirmation, than the candle following the Hammer must start moving up.If the candle following the Hammer opens Gapped-up, than it will be more significant.Hammer is even more active if it is preceded by atleast 3 or more Bearish or declining candlestick's.
Stop-loss : Stop-loss in this can be set anywhere below the low of Hammer's shadow.
while considering the stop-loss and target price , you are adviced to try support and resistance,pivot point's also.
Hammer have very similar and resembling candlestick known as Dragonfly Doji.When similar pattern is seen during an upward trend , it is than known as Hanging man candlestick.