The Hammer Pattern is formed by a short body at the top of a long trail. Hammers must occur at the end of significant trends to have meaning.
Hammers indicate indecision in the direction of the trend. A black (solid) hammer which occurs at the end of an uptrend is called a Hanging Man. Thsi type of Hammer indicates the market's propensity to sell off sharply. However, one should wait for the next session to confirm the bearish mood (i.e., for the market to open below the close of the hammer). On the other hand, white (open) Hammers which occur at the end of downtrends show strength for a reversal to the upside, since the bulls are clearly bucking the downtrend to close near the open for the session.
A Hammer occurs when the high, open and close occur at roughly the same price, but the low of the day is far below.
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