Hammer and Momo Hammer

Introduction

Hammer and Momo hammer are actionable signals representing a trend reversal and trend continuation, respectively. 

However, there are a few requirements and rules that a trader must know to trade these two candlestick patterns.

In this article,  I have explained these rules in detail, so make sure to read the full article without skipping any point.

Hammer Actionable Signal

Hammer is a candlestick pattern with a long lower tail and a small upper body. It is a trend reversal pattern.

You must follow these two rules to identify this pattern:

• The hammer should form after a series of lower candlesticks.
• The body of the hammer should form in the upper 33% of the total range of candlesticks. 
• The color of the hammer candlestick can be red or green.

Also, look at the image below to find an ideal hammer candlestick pattern for the price chart.

When does this signal become inforce?

In-force signal means it has become valid, and now it’s time to open the trade. 

When the price breaks the high of the hammer candlestick, then it becomes in force. This means it is now valid, and we can open a buy order with a stop loss below the current candlestick’s low point. 

A hammer pattern is incomplete without a break of high. That’s why after a high breakout, we can expect the 2-2 pattern formation and keep holding the trade until the high of the candlestick that formed before the hammer.

Why does the hammer signal should work?

On the candlestick chart, the formation of a series of bearish candlesticks represents the presence of more sellers in the market. But when the price goes down and then recovers to its original position, then it means sellers are no longer powerful enough to keep pushing the price downward. Now, buyers are stronger, and a lot of buyers are present at that support level, and they will push up the price in the future. 

The break of the high hammer pattern confirms that it’s a valid point to buy from here. 

Momo Hammer actionable signal

Momo hammer is a candlestick pattern with a long lower tail and small upper body, but it forms near the high of the previous uptrend. It is a trend continuation pattern.

Follow the following rules to find this pattern accurately:

• Momo Hammer should form near the high of the previous bullish trend or a big bullish candlestick.
• The body of the momo hammer should form in the upper 33% of the total range of candlesticks. 
• The color of the momo hammer is not important; it can be red or green.

Look at this image below for a better understanding of this pattern.

When does this signal become in force?

The momo hammer becomes in force when the price breaks the high. 

Momo hammer is a trend continuation pattern, which is why after a break of the high, a bullish trend will continue. Basically, it is used to trail stop loss. When a momo hammer forms, we place our stop loss below the low of this candlestick (For buy trades only). After the break of high, we continue holding the trade in profit. On the other hand, if the price reverses, then we will still save profit from the market. 

The psychology behind the Momo hammer

The momo hammer represents the profit-taking pullback by the traders with a minimal amount of short positions. Also, it forms during the bullish solid trend, showing the continuation of the previous trend after the break of the high. 

The bottom line

Both momo hammer and hammer patterns are actionable signals when traded with the confluence of the strat rules, giving very high probability trades.

I highly recommend giving some time to learn the psychology behind each pattern because when you practice on the chart, you will learn many more price patterns. You should take at least 50 screenshots of each pattern and then analyze those screenshots later to master the basics of strat trading.

If you have any questions related to these two actionable signals, then remember to comment below, and I will try my best to answer all of your queries.

Thanks