Trading candlestick meanings refer to traders using the hammer candlestick patterns to influence their trading decisions. In this article, we will explain what a candlestick is and how to trade with them.
What is a candlestick?
Trading candlestick meanings refer to traders using the hammer candlestick patterns to trade. Now we will explain what a hammer candlestick is.
A hammer candlestick is formed when a candle shows a small body along with a long lower wick. The wick (or shadow) should have at least twice the size of the candle body. The long lower shadow indicates that sellers pushed the price down before buyers pushed it back up above the open price.
In the graph below, you can see the opening price (1), the closing price (2), and the highs and lows that form the wick or shadow (3).
In a candlestick chart, every candle relates to one period, according to the timeframe you select. If you look at a daily chart, every candle represents one day of trading activity. If you look at a 4-hour chart, every candle represents 4 hours of trading.
Bullish hammers
Hammer candlestick pattern
A bullish candlestick hammer is formed when the closing price is above the opening price, suggesting that buyers had control over the market before the end of that trading period.
Inverted hammer candlestick pattern
An inverted hammer is formed when the opening price is below the closing price. The long wick above the body suggests there was buying pressure trying to push the price higher, but it was eventually dragged back down before the candle closed. While not as bullish as the regular hammer candle, the inverted hammer is also a bullish reversal pattern that appears after a downtrend.
Bearish hammers
Hanging man candlestick
The bearish hammer candlestick is known as a hanging man. It occurs when the opening price is above the closing price, resulting in a red candle. The wick on a bearish hammer indicates that the market experienced selling pressure, which suggests a potential reversal to the downside.
Shooting star candlestick
The bearish inverted hammer is called a shooting star candlestick. It looks just like a regular inverted hammer, but it indicates a potential bearish reversal rather than a bullish one. In other words, shooting stars candlesticks are like inverted hammers that occur after an uptrend. They are formed when the opening price is above the closing price, and the wick suggests that the upward market movement might be coming to an end.
In Conclusion
Trading candlestick meanings refer to traders using the hammer candlestick patterns to trade. While candlestick graphs are a useful tool to help traders spot potential trend reversals, traders should definitely combine candlestick graphs with other trading indicators to ensure accuracy of decisions.
