Hammer Pattern Forex Candlestick Strategy
It is important to know the characteristics of the hammer pattern so that we can easily identify this pattern.
Hammer can be seen as:
- The lower wick (the tail) is at least twice as large as the body and the upper
wick. - It is found at the major support.
Inverted hammer:
- The upper wick is at least twice as large as the body and the lower wick.
- It is found at the major resistance.
This system works on a 15-minute and 4-hour timeframe. Daily pivot points are employed on a 1 hour timeframe and weekly pivot points are utilized when trading off 4-hour timeframe.
4 hour timeframe entry signal:
Same technique that is used in a 15 minutes but instead of weekly pivot, you will use daily pivots.
Buy Entry Signals:
- Price must be above 20-period Exponential Moving Average (EMA20) and
- EMA20 must be above 50-period Exponential Moving Average (EMA50).
- Price moved past a pivot level (S1/S2/S3/P/R1/R2/R3) and retraced back on the exponentials moving averages (Time Frame 15 min 4H Time Frame retrace back also Weekly pivot points level).
- A hammer formed.
- When the hammer candlestick closed, we enter at market price with three lots.
- Stop loss should be placed 10-20 pips below the Low of the hammer depending on the volatility of the currency pairs we’re trading.
Exit Signals:
- When price moves in our favor the same distance as our stop loss we take one lot out. For example, if our stop loss is 50 pips away from entry price,
- when we have 50 pips in profit we exit one lot.
- For the remaining two lots, we trail our stop loss a few pips (5-10 pips) below EMA20. We let our profits run and let the market decide when our positions are closed.
FOR SELL ENTRY:
- The rules are obviously the opposite of the rules for buy (long) signals.
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