Forex candlesticks behavior can reveal future market trends and current market sentiment. For example, the Hammer or Hanging Man candlestick formation, which we will refer to as Hammer Formations, can indicate trend reversals. With their small bodies and long lower wicks, these formations look just like, you guessed it, a hammer!
Bullish Hammer Formations
Bearish Hammer Formations
The Bearish Hammer Formation appears after a currency pair has had a significant upward move and implies a top and a trend reversal. The candlestick shows that the currency was not able to close on a positive note, which would indicate weakening market sentiment after a currency pair has had a significant rally.
How To Trade Hammer Formations
You can trade Hammer Formations in two ways.
1. Some traders will immediately enter the market once a hammer formation appears, in case the market does not have a pull back and the reversal occurs immediately.
2. On the other hand, some traders will enter the market after the currency pair attempts to retest the hammer level and does not break through, confirming the trend reversal.
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