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Hammer is used for short term trading when applied to daily charts. Trader can take position accordingly on the particular trading days depending upon the formation of pattern. This will help you screen out stocks having Hammer formation.
Usually it is said that if the Hammer pattern is in downtrend than probably downtrend is near to an end so those who are short can think of squaring up their positions & short term trader can also start accumulating the stock to rise the comming upside.
There are three main characteristics that a pattern needs in order to qualify.
1. The real body is at the upper end of the trading range; the color
(white or black) is not important.
2. The lower part, or the "shadow," should be at least twice the length
of the real body.
3. It should have little or no upper shadow, like a shaved head candle.
After a long decline, if a hammer forms on higher or increased volume, this adds to the certainty that a capitulation low has occurred.
Hammers can be created both by a closing below the open, which would be assigned a negative change value, and
by a higher close than the open, which would be assigned a positive change value.
