Hammer Candlesticks give a clearer view of the movement of price of currencies as compared to other technical indicators. They are easy to interpret therefore traders find them far more interesting and appealing than other tools of technical analysis.
Colour of Candlestick:
The colour of real body has a great significance in analyzing the movement of price of a currency in Forex trading. It indicates if the opening price of a currency is higher or the closing price. There are basically two colours associated with Japanese candlesticks. These are white and black.
Black Colored Candlestick:
A black candlestick shows that the opening price of a currency is higher as compared to its closing price. Therefore it is clear indication of selling pressure. Obviously it also reflects a bearish trend.
A White candlestick is also known as hollow candlestick. It reflects that the opening price of a currency is less than its closing price. Thus you can expect buying pressure as it is a bullish trend.
Candlesticks have lines on both its ends. These lines are called shadows. The shadows indicate the complete and thorough range of the movement of the price. It ranges from lowest value to highest value of the currency. The upper shadow highlights the highest value of the currency in a particular day while the lower shadow reflects the lowest value of the currency.
A widely observed and analyzed single candlestick pattern is Hammer. Hammer is a pattern that reflects the reversal of a bullish trend. It indicates that price is going towards its lowest value therefore you can expect that it will rise again soon. Its long but lower shadows reflect that initially the sellers decreased the price but eventually the buyers took control of the situation and got rid of selling pressure. Obviously you can neither be hasty nor greedy in Forex trade. Thus do not place a buying order at the first sight of the hammer. First of all, you need to thoroughly recognize a hammer. You need to make sure that:
- There is no or just a slight shadow.
- The length of the long shadow must be at least two times than the body.
- The body must be at the upper end.
If these criterion have been met then you have recognized a hammer. Now decide wisely and earn profit.