A hammer candle is a single formation candle that can signal a reversal of a trend. Visually, it contains a small body and a wick longer than its body. They only occur in a downtrend. A hammer candle forms when the price of a stock falls from its opening price. At this point, the sellers are in control. The stock reaches a price that buyers like and they return the price either close to its opening price or above. The stock closes at this price and a hammer candle is born. More significance is placed when this occurs off of a support level. Even more significance is placed on it when there is an increase of volume. Hammer candles require confirmation. The reversal probability increases if the stock price opens higher the following day. You will see this candle quite frequently. Just remember that this ONLY occurs in a downtrend. They have little to no meaning when they occur elsewhere. We will provide you with examples to help you identify this candle formation.
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