Share Market Knowledge: This hammer gives the right signal to buy shares, those who recognize it don’t know – what’s the downside?

Earn money from share market: Making money in the share market is not as easy as it looks from the outside. But it’s not like money can’t be made. To make money, an investor must understand the movements of the stock market. With the help of this understanding, investment and earning opportunities can be found. There are two types of methods used for investment. First – fundamental analysis, and second – technical analysis. In this series of share market knowledge, we are giving information about both these investment methods. List of previous articles and links are given at the end of this article, so that you can understand other things easily. Today we are talking about a hammer, which provides an investment opportunity.

A hammer candlestick pattern is visible from only one candle. The opening price (open) and closing price (close) of this candlestick are close, but the shadow is quite long. Visually this candle looks like a hammer. It is also similar in appearance to the English word T. If such a candle is seen somewhere, one should keep an eye on this share. You can see in the image below.

A hammer candle might look something like this. Long shadow above and below the body.

How does the hammer pattern work?
A hammer pattern only works if it is formed after a long decline. If it forms somewhere in the middle of the chart or appears at the top, it is not effective. It is best to ignore such hammer patterns. It can be more effective if a hammer forms in a falling stock. The logic behind this should be understood.

The continued decline of the stock means that the bears have a strong grip, and they are constantly succeeding in driving down the share price. Then one day the price drops a lot, but at the end of the day the closing price is close to the opening. In many cases the price closes above the open. This means that the bears were able to push the price down further, but the bulls entered from the bottom and were able to bring the price closer to the open and close. Here the power of bulls is clearly visible. And wherever the bulls enter, share prices continue to rise.

Where should I enter?
According to Anastoppedia, the hammer should not be entered by sight alone. You should also look at the next day’s candle for entry. If the next day’s candle price closes above the hammer, buy shares there. The price closing in green in the second candlestick is called hammer confirmation. After the confirmation candle, the stock has the potential to bounce back.

You can see an example of a hammer candlestick in the Grossum Industries chart.

Some people enter just by looking at the hammer, which is a very wrong practice and not practical at all. It is possible that after the hammer formation, the bears will regain dominance and take the price further down. So one should wait for a good green candle after the hammer, which proves that the bulls have really entered the market and have the potential to take the price higher.

Don’t even think without stopping
A stoploss is created to limit potential losses. According to the hammer and confirmation candles, entries should be placed slightly below the low of the hammer candle. If the bears regain dominance after the entry, the stock could drop significantly. It is possible that the hammer candle was created only with the intention of trapping. In such a situation it makes no sense to buy shares without a stop loss.

The biggest problem for investors looking at the hammer candle is the stop loss. Since the low volume of the hammer candlestick is very low, the value of the stop loss becomes very low. Normally, a stoploss that large is not kept. If the stop loss level is large enough, an investor can set the stop loss according to his risk appetite.

Link to previous articles –

1. Share Market Knowledge: Learn to spot bullish candles, you’ll catch shares before they run away!
2. Share Market Knowledge: Why do shares start falling as soon as you buy them? If you follow these 5 tips, you won’t get scammed.
3. SHARE MARKET KNOWLEDGE: Just by looking at 2 things, whether the share soars or sinks, there will always be profits.

Tags: business news, Money making tips, Stock market, Stock market, Technical knowledge