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The SECRET to the Hammer Candlestick Pattern - Reversal Patterns - YouTube
Channel: Riley Coleman
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So what is the hammer candlestick
pattern and how do you use it in this
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video we're going to walk through why
this is one of the most powerful
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candlestick patterns there is hey how's
it going on this channel you will learn
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you're new here consider subscribing and
today we're talking about the hammer
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candlestick pattern so first we're going
to start off here with two bullish
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hammers now it might be kind of weird
that there is a red candle here but this
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pattern here is still bullish even if
the stock closes lower now the basic
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idea with these candles is that this is
a reversal pattern so as a quick example
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with one of these the basic idea with
this reversal pattern is you want this
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stock to be in a downtrend already and
then coming into a support level that
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you have already identified and so when
it comes into that support level you see
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this hammer pattern form and then that
is going to give you a good idea that a
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reversal could be happening here and
that the stock will start to go up from
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here but let's actually dive into why
this hammer pattern works and really
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what is it telling you so to analyze
what is happening over this candlestick
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we can see that the stock opened here
and then closed here and then trade it
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all the way down as low as this low here
now what this tells you is that the
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stock opened here and traded all the way
down here and then reversed in the time
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of this candle and then closed all the
way up here higher than it's open now
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what this shows you is if the stock was
in a previous downtrend coming from here
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and then you had a support level down in
this area somewhere this is showing you
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that the stock bounced off of that level
and is now trending higher with the idea
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that hopefully this is a larger reversal
in this
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that we're in and then the stock could
start going this way and that is when
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you want to potentially buy it and so
that's the power of this hammer is that
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once you really understand what is going
on in this candle it's showing you what
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this stock is reversing here from going
up here to where this candle opened and
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then now in this candle the stock has
reversed and that gives you a signal
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this is a signal bar and what you want
to be doing with these kind of signal
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bars is using them for when you're
entering your trades you don't want to
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be entering your trades just when you
see a strong support level if you have a
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strong support level down here you don't
just want to buy there blindly you want
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to be looking for these kind of candles
to really give you a confirmation that
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the stock had a strong bounce off of
here and that it's pretty likely that
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the stock will continue up for a certain
period of time now if you had this same
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scenario where the stock was trading
down and you had a doji form here
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looking kind of like this this would
have been a really bad signal bar even
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if the stock did kind of bounce off this
support level here this is a really bad
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signal bar and it doesn't really confirm
that the stock is reversing this more
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shows that the stock opened you know may
be here trade it down here and then
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trade it all the way up here and then
close back down so it shows you that
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there's a lot more chop around where the
support level is so maybe it's holding
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for now but it could as just easily
break through this support level and
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then continue this trend down that it
already had and you definitely don't
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want to be buying into that you want to
be using these candles as more of a
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reversal pattern now to show you quickly
why this red candle is still just as
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strong as the green one there can be
arguments to say that oh it's maybe not
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as strong but in my opinion it's still
pretty strong now to dive into what
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happens in this candle it opens up here
and then trades all the way down here
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and then closes up here now that is
still
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showing you a potential reversal
especially if you have a large trend
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coming down here and then a support
level down here and so this could just
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be showing you a different time period
in the reversal may be that if you look
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you know after a little bit more the
stock will have come up here and that
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could have made the you know last
bullish candle that we saw this is still
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showing you that potential for that
reversal in the stock and so these are
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still really strong candles and you want
to be using them as well as the more
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bullish looking green ones to quickly
show you a better visual of this again
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you want to be looking for this
downtrend in effect and then you want to
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be waiting for this hammer to happen in
this support level that you've already
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pre established you want to be already
pre establishing these levels where
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you're looking for reversals and then
see these hammers happen you don't want
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to be waiting and then looking for these
hammers randomly these hammers can
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happen anywhere throughout a stock but
they don't necessarily mean a reversal
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is happening in a random spot you
definitely want to be looking for a more
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textbook situation that looks a little
bit more like this scenario that we want
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to see you want to be very picky in your
trading even if you have all these
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perfect support levels lining up that
almost always work you still want to be
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waiting for these stronger signal
candles because the perfect setup can
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still fail and if a doji formed here
instead of this bullish hammer this
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trade wouldn't look as good and if you
took the trade there it might actually
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turn into a loser now on the flip side
you can use these two short just as well
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as going long it's just the complete
opposite you are still using these as a
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reversal pattern and they can beat green
or red now of course a stronger looking
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setup is when it is red compared to
green but again they are still pretty
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similar now just like the last setup
you're gonna want to see that uptrend
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and then have that predetermined
resistance area where you're looking for
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reversal already and just be waiting for
this very strong signal bar here
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of course you don't want to take the
trade if you have a bad signal bar like
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a doji or just another green candle here
if you had a green candle into this that
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would not be a good signal bar you'd
want to still be waiting for a stronger
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signal bar like this hammer here and
then if this hammer happened you'd want
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to be looking for the stock to you know
maybe break here and that is when you
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might want to enter the trade and then
look for the stock to be continuing that
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reversal pattern and start that new
potential downtrend now just like
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everything in trading it is never this
simple I would definitely be studying
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and watching how these patterns and
these kind of reversal patterns actually
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work in real time I'm just showing you
here really the nuts and bolts of how
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this pattern work now you need to go out
and study and really learn how to use it
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yourself so thanks for Chyna this video
if you want to learn more about trading
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and candlestick patterns in general make
sure to subscribe to the channel and if
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I have any burning questions feel free
to ask them in the comments below
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