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Japanese Candlestick Hammer

The psychology behind a Japanese candlestick hammer

By PsyDoc | Mindsetprofit | 14 Dec 2021


The Japanese candlesticks is one of the different possible graphic representations of the movements of the market. They have been used for many years on the stock markets for a better understanding of the movements. Each representation has some pros and cons, the most important thing on the Japanese candlesticks is that they make a cleaner representation and can be easy to understand what happened. One of the most used candlesticks to indicates reversal trends is the hammer.

The hammer consists of a small body with a tail with at least two times of the body.

hammer candlestick

It is just an information of the market, but we will see how a beginner, an advanced and a big player will use this signal.

Beginner

The beginner that is starting to make his first trades is looking for an opportunity to enter, sometimes he already has a fixed idea in his head that the market is going to goes up. He remembers that someone said that a hammer indicates a reversal trend and when he sees ones on the directions that he wants he buys. When he is right ok, when the markets go on the other way, he complains that candlesticks don’t work.

Advanced

If a trader is using a trade system that a hammer is part of his strategy he will enter as soon as he sees one. He doesn’t know what the market is going to do. He is following his plan. He will enter after considering a lot of factors may uses with other indicators, he looks the news, witch time of the day is, he looks the overall market. If the trade goes wrong, he knows it is part of the process and because he uses a risk management, he will be not fell hurt.

Big Player

A big player is someone who has a big amount of a crypto or money and can directly affect the market movement. If the reversal trend is a fact, he can use a hammer as an opportunity to enter better. Let’s suppose that a marketing is going down and with some hot news the trend is now to goes up and then a hammer candlestick is formed reenforcing the trend. He knows that a lot of traders entered because of the candlestick formation. And probably most of then put a stop order under the tail. Now he can first sell a huge amount with big sell orders, the stop of the traders will activate, and the market goes a little more down, and just then the big player starts to buy with a cheaper price.

Conclusions

We will never know what the market is going to do. Some indicators and signals are one aspects of our decisions on when to enter and witch amount of our capital we will allocate on that trade. As we can see everyone will interpret the same figure as different ways, this is one of the tons of reasons that why the markets are so random. And we should always be thinking and rethinking about our trading strategies.

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PsyDoc
PsyDoc

A Psychologist that want to spread his knowledge with the crypto community


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