The Bullish Hammer is a price pattern which shows up when prices drop significantly, but rallies to close near the open. Visually, the pattern is a hammer-shaped candlestick with a lower shadow indicating price rejection by being significantly larger than the candle body.
What is the Bullish Hammer pattern
ABullish Hammer is identified in downtrends where the prior bar is a down-close or a small body bar. The body represents the difference between the open and closing prices, whereas the shadows shows the high and low prices for the period. The current bar’s range is above average and has a large lower shadow.
As for determining the current bias, the candlestick indicator comes with an internal Swing Trend indicator. Deviation type, calculation period and deviation threshold is set via the indicator dialogue box. Likewise, the lower shadow is defined as x times larger than the body size and the upper shadow. Finally, the current bar’s low marks a new N bar low, also user selectable in the indicator dialogue box. The bearish equivalent of this pattern is the Shooting Star.
Being one bar patterns, they will occur quite frequently and are not particularly reliable if used without additional confirmation. One may improve the statistical probability by combining trend filters, for example a moving average or the Donchian Channel, and key support / resistance levels as found in our session tools category. An example showing how to combine additional technical indicators with candlestick patterns available here.
Other bullish candlestick patterns
Other bullish candlestick patterns include the bullish belthold, bullish engulfing, bullish harami, bullish harami cross, white marubozu, bullish piercing, dragonfly doji, inverted hammer, morning star, morning doji star, long white candle, tweezers bottom, three white soldiers and the rising three methods.
The Bullish Hammer and the above patterns may be identified with our candlestick pattern indicator for NinjaTrader 8. Check out the LizardIndicators Premium Section for more information.
