Hammer Candlestick: What It Is and How to Spot Crypto Trend Reversals

The hammer candlestick is one of the most popular candlestick patterns traders use to make sense of a securities’ price action. Most price action traders use this candlestick to identify reliable price reversal points. Moreover, this candlestick works well in all financial markets, including forex, stocks, indices, and cryptocurrencies. 

Trading in the financial market requires considerable knowledge of technical and fundamental analysis. The ultimate approach is to identify the price direction based on price action analysis. If done correctly, traders will make money. However, finding the price direction requires complex analysis and multiple confirmations using trading tools like candlesticks, price patterns, and trend recognition. 

We’ll discuss how the hammer candlestick shows a reversal in price direction after a bearish trend, and then we’ll consider a complete hammer trading strategy.

Key Takeaways:

• The hammer is a bullish reversal candlestick that appears after an extended downtrend.

• Success in using the hammer trading strategy depends on the market context, candlestick location, other confirmations, and market momentum.

• The biggest drawback of this pattern is that it might show a retracement of the intraday bearish trend instead of a reversal.