The Hammer and Hanging Man Candlesticks

With today’s Forex trading system platforms, investors have their pick of the crop of technical analysis indicators or charts. These charts (often in array of colors) provide both the novice and experienced trader an opportunity to develop a real fluid trading strategy even without the advice of a Forex trader. One of the most useful types of charts that are available on one of the many Forex trading system platforms is a reversal candlestick pattern.

The Hammer candlestick
Like its name suggests, the hammer candlestick (a reversal candlestick) is shaped like a hammer. It has a long bottom shadow (usually two to three times the size of the real body) and a very minimum or no top shadow. That means that the currency rate for the majority of the time period falls below the opening or closing rate. The color of the real body (either the close is above the open or the open is higher than the close) is not important. What does matter is that this candlestick represents a turning point, or the start of a reversal bullish trend on a Forex trading system. In other words, it’s trying to “hammer” out a positive trend.

It’s important to know that a hammer only occurs in a downtrend. The upward movement can them be confirmed once another white or hollow candlestick forms with a higher open than the candlestick to the left of the hammer.

The hanging man candlestick

The hanging man reversal candlestick is identical in shape to the hammer candlestick – long lower shadow, no real upper shadow – except that it signifies a bearish reversal pattern on a Forex trading system chart. Opposite to the hammer, the hanging man candlestick only occurs in an up trend. It signals that the currency rate is about to drop: no more interested buyers exist to push the rate up. The reversal trend can be confirmed once a candlestick forms with a lower closing rate than a candlestick to the left of the hanging man. The color of the hanging man candlestick is not important, but it tends to be black (or red on some charts) or bearish, which means the close is above the open.

“Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.”


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