If you’re an intraday trader, you know how important it is to have a reliable trading strategy. One popular strategy is using candlestick patterns, which can help you identify potential market reversals. The Hammer Candlestick pattern is a commonly used pattern among traders, and in this article, we’ll take a closer look at it’s Best Candlestick Pattern for Intraday Trading?

Hammer – Best Candlestick Pattern for Intraday Trading

What is the Hammer Candlestick Pattern?

The hammer candlestick pattern is a bullish reversal pattern that forms at the end of a downtrend. It’s named after its resemblance to a hammer, with a long lower wick and a short body. The hammer pattern shows that the market has attempted to move lower but has been rejected, and buyers have pushed the price back up. The pattern is considered more reliable if it appears after a prolonged downtrend and has a long lower wick.

How Does it Help in Intraday Trading?

The hammer candlestick pattern can help intraday traders identify potential market reversals and make profitable trades. When the hammer pattern appears after a prolonged downtrend, it indicates that the market is potentially ready to reverse and move higher. Intraday traders can use this signal to enter long positions and ride the market up.

Also Read: Do stock market patterns work?

Best Strategy to Use with Indicators:

To maximize profits using the hammer candlestick pattern, intraday traders can use it in combination with other technical indicators. Here are two commonly used indicators to consider:

1. Moving Average:

Step-1: Start by identifying the overall trend of the market using a simple moving average (SMA). If the SMA is sloping downwards, the market is in a downtrend.

Step-2: Wait for a Hammer Candlestick Pattern to appear on moving average. The Hammer should have a long lower wick and a short body.

Step-3: Confirm the signal by waiting for the price to close above the Hammer’s high. This indicates that buyers are stepping in and the market is potentially ready to reverse.

Step-4: Enter a long position when the price breaks above the Hammer’s high. Set a stop loss below the Hammer’s low to minimize potential losses.

Step-5: As the market moves up, use a trailing stop loss to lock in profits and protect against potential reversals. You can use the SMA to trail your stop loss by moving it up as the market moves higher.

Also read about: Exponential Moving Average Indicator

2. Pivot Points:

Step-1: Identify the daily Pivot Point and the support and resistance levels for the day.

Step-2: Wait for the Hammer Candlestick Pattern to appear near a support level, indicating a potential market reversal.

Step-3: Enter a long position when the market breaks above the Pivot Point, with a stop loss set just below the support level.

Step-4: Take profit at the first resistance level or let the trade run until it reaches the second or third resistance level.

Also read about: Pivot Points Indicator

Final Words:

The hammer candlestick pattern is a powerful tool for intraday traders looking to make profitable trades. By understanding how it works and using it in combination with other technical indicators, traders can identify potential market reversals and ride the market up for maximum profits. However, as with any trading strategy, it’s important to have a solid risk management plan in place to minimize potential losses.

FAQs – Hammer – Best Candlestick Pattern for Intraday Trading