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Abandoned Baby
Belt Hold
Breakaway
Concealing Baby Swallow
Doji Star
Dragonfly Doji
Engulfing
Gravestone Doji
Hammer
Harami
Harami Cross
Homing Pigeon
Inverted Hammer
Kicking
Ladder Bottom
Mat Hold
Matching Low
Meeting Lines
Morning Doji Star
Morning Star
Piercing Line
Rising Three Methods
Separating Lines
Side by Side White Lines
Stick Sandwich
Three Inside Up
Three Line Strike
Three Outside Up
Three Stars In the South
Three While Soldiers
Tri Star
Unique Three River Bottom
Upside Gap Three Methods
Upside Tasuki Gap

Hammer
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Pattern: reversal
Reliability: low/moderate

Identification
A small real body forms at the upper end of a trading range with a long lower shadow (the longer the more bullish) with no, or almost no upper shadow.

The Psychology
In a downtrend or within a pullback of an uptrend, a sharp intraday sell-off is followed by a reversal which causes the stock to close near its opening price near the day’s high. This hints at the possibility of a reversal. Bulls most likely were shaken out by the intraday weakness, and shorts start getting a little worried with the bounce. The pattern is a slightly more reliable if the real body is white, but a strong following day on solid volume is still needed to confirm the pattern.

The bullish Hammer is similar to the bullish Dragonfly Doji, bearish Hanging Man, and bearish Dragonfly Doji.



CCK rallied nicely off its early May low on seven consecutive up days. The stock then pulled back to establish a possible short term support level. The bullish Hammer candle that formed a few weeks later was playable to the upside when confirmation was given by the white candle that followed.



NKE suffered a pretty drastic sell off in February '00. In our opinion a bullish Hammer candle in late Feb would not have been playable…too risky. But two weeks later after the down trend had been halted, the bullish Hammer presented a favorable risk/reward trade on the long side.



SUP is another example of waiting for a stock to establish support before playing a reversal. Playing the first Hammer candle would have been too risky, but waiting for the second one increases the reliability of the pattern.


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