The green hammer is a bullish chart pattern that can often be observed when trends change on a short term perspective. It is important in combination with another trend changing factor such as a bunce off of an important support level or crossover move.
It is an easy to spot shape that resemples the look of a hand tool: The hammer.
The closed upper shape of the hammer represents a behaviour by traders. They buy into the upside of a currency at the end of a time period, i.e. 15 minutes as seen on above chart. In both cases of the shown chart the price of GBP versus USD rallied by 15 pips to 20 pips within less than one hour. It is important for the full body of the upper part to be at somewhat natural in proportions (40-60% iron and 40-60% handle parts).
How to trade the green hammer?
Once a hammer is formed wait for a retracement to reach approximately 50% of the full body of the green hammer’s candle. It is advisable to put a stop-loss a few pips under the candle. Time frame, currency pair and market dentiment are to be considered in order to use this candle stick pattern for trading.
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