In this video we're going to take a look at the hammer and hanging man candlestick patterns.
So a hammer has a long wick to the downside and then we'll have a body that is relatively small like
so.
And I'll just fill it in there.
But that's basically what a Hammer looks like and the idea is that this is the handle and that's the.
The mallet part of the hammer.
So what does this suggest.
It suggests that in a situation where you have that candlestick that traders try to rally they fell
and they came back and you know something like that has happened.
We'll think about what's going on in the mindset of traders out there.
There are sellers that are now losing money and most certainly will.
If we break above the top of that candlestick for the hour or the day or whatever it is in this case
happens to be the hour so here we have a hammer.
And it shows a reversal.
Think about what happens everybody who is going along with the downtrend in the Swiss franc Japanese
yen pair here continues to sell on a break down below support but it gets turned around and we ended
up forming a hammer.
Now there are several hammers here and that's not that uncommon on short term charts like the hourly
chart.
You can see that we're starting to see a lot of support come in.
These are four different hammers and with that being the case it's only a matter of time before we take
off to the upside.
And so how do you trade that.
Well the easiest way is to let the hammer form and then take a trade about five to 10 pips above the
top of it because this ensures that everybody in this candlestick that is short of this market has now
the prospect of losing money.
So you can see that the next candlestick after the hammer rose slightly enough to get you into the trade
we pulled back and then it led the charge much higher hammers are very important candlesticks.
They're very crucial.
You can see here is another example of one we pulled back and then we rallied quite nicely on higher
timeframes.
They do matter more.
So a weekly hammer outweighs a narrowly hammer so the Hanging Man pattern is the exact same candlestick
except for you know in this case the candlestick is at the top of an uptrend you know.
So it shows in this scenario that we're rallying and then we get into the day rally a bit more we pull
back and then we stabilize.
And anybody who's long at this point thinks OK well it looks like we're going to go ahead and try to
push higher.
But once you break down below the bottom of that this hammer like candle becomes what is known as a
hanging man.
That's a very negative sign.
It shows that not only have everybody who got involved in this candlestick started to lose money that's
a sign of serious support being broken because we've already bounced from their so you will see these
at the top of rallies and there's actually two right there.
So that's a really good example.
We're obviously in a nice uptrend in the Canadian dollar Japanese yen pair.
So once we break down below the first one technically that's a cell signal and that is most certainly
a cell signal.
Once you've broken down two of them and you can see that we fell almost immediately.
Now it happens time and time again especially in shorter term charts.
You can see that this was a short term cell there as well but much like the hammer the key is to trade
it after we've broken below the bottom of it.
If we break over the top of it then that's just a continuation of the uptrend.
So in conclusion a hammer same candlestick shape shows a reversal of a downtrend and a Hanging Man shows
a reversal of an uptrend.
Just think of it this way support and resistance comes into play in this particular candlestick.
That is a lot of support in theory if it gets turned around and it breaks to the upside then everybody's
losing money at the bottom of a downturn that got involved that day or that candlestick.
If it's at the top of an uptrend you are right it's feeling good.
There's stability there.
Looks like we're going to continue.
But if we turn around and smash through the bank of that everybody's losing money and now it suddenly
looks not quite as strong as it once was in the next video.
We'll take a look at inverted hammers and shooting stars.