The Hammer
The hammer worth motion sample is a bullish sign that signifies the next chance of the market shifting greater than decrease and is used primarily in up-trending markets. Right here is an instance of what a hammer candle appears to be like like:
A hammer reveals sellers pushing the market to a brand new low. Nonetheless, the sellers usually are not sturdy sufficient to remain on the low and select to bail on their positions. This causes the market to rally again up, main consumers to additionally step into the market. The open and shut worth ranges ought to each be within the higher half of the candle. Historically, the shut will be under the open however it’s a stronger sign if the shut is above the opening worth stage.
Within the above worth motion foreign exchange chart of EUR/USD, there are two examples of a hammer sample highlighted within the gold bins. By means of the evaluation of the open, shut, excessive and low worth ranges the sample suggests a transfer greater is probably going. In these highlighted examples, worth did transfer greater after the candles fashioned. After all, this is not going to all the time be the case and there are even examples of this in the identical chart. Nonetheless, how might you may have traded these highlighted indicators?
THE ENTRY: A doable worth stage to enter a commerce, might be when the following candle lastly manages to interrupt the excessive of the hammer candle. The excessive of the second highlighted hammer candle above – which fashioned on the week of 16 February 2020 – is 1.0863. Due to this fact, an entry worth might be 1.0864.
THE STOP-LOSS: A doable cease loss stage might be on the low of the hammer candle. If the market triggers the entry worth however no different consumers step in, it is a warning signal the market might must go decrease for any consumers to be discovered. Due to this fact, you wouldn’t need the cease loss to be too near your entry. With the low of the hammer candle at 1.0777, a doable cease loss might be 1.0776.
THE TARGET: There are a number of methods to exit a commerce in revenue reminiscent of exiting on the shut of a candle if the commerce is in revenue, focusing on ranges of assist or resistance or utilizing trailing cease losses. On this occasion focusing on the earlier swing excessive stage would lead to a goal worth of 1.1095.
THE TRADE: With an entry worth of 1.0864 and cease lack of 1.0776 the full danger on the commerce is 88 pips. Buying and selling at 0.1 lot would imply that if this commerce triggered the entry worth, then hit the cease loss, the general loss could be $88. On this occasion, the market traded greater to the goal worth leading to an approximate commerce revenue of $231.
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