the hAnDbook of technIcAl AnAlysIsTrigger, Stoploss, and Confirmation:■ (^) The trigger is at the high of the first candlestick.
■ (^) To confirm the reversal, price needs to close above this trigger level.
■ (^) The stoploss is placed at the low of the first candlestick or pattern.
■ (^) A sellstop entry order may be placed at the low of the candlestick pattern only
if there is evidence that the downtrend is still in effect.
hammer
figure 14.31 A Hammer Pattern.
Description:
■ (^) The Hammer is a single candlestick pattern. See Figure 14.31.
■ (^) The Hammer is a small‐bodied candlestick with a long lower shadow. The real
body should not be larger than 1/4th to 1/3rd of the range of the Hammer
formation.
■ (^) The lower shadow should be long and extended compared to the real body.
■ (^) It is best found in a protracted downtrend that is beginning to display weakness.
■ (^) Its corresponding bearish version is the shooting star formation.
Psychology:
■ (^) Initially, the sellers or bears attempt to drive price lower in Hammer forma-
tion. The buyers finally drive prices up aggressively, above the midpoint of the
candlestick, showing that the bulls are now in control.
Trigger, Stoploss, and Confirmation:
■ (^) The trigger is at the high of the Hammer itself.
■ (^) To confirm the reversal, price needs to close above the trigger level.
■ (^) The stoploss is placed at the low of the first candlestick or pattern.