WEBVTT 00:09.300 --> 00:16.960 What does this candle say about the fight between buyers and sellers? The hammer has a small real body, 00:16.960 --> 00:24.990 so we can say that during the session there's been a pretty even balance between buyers and sellers. 00:24.990 --> 00:29.690 This is also the reason why the colour of the real body is not important. 00:29.880 --> 00:33.810 It's the size of the real body that is important. 00:33.840 --> 00:36.060 Now let's have a look at conditions 00:36.060 --> 00:43.350 two, three and four to check if this candlestick is telling us something more about the fight between 00:43.350 --> 00:45.260 bulls and bears. 00:45.720 --> 00:49.720 The real body is at the top end of the session's range. 00:49.740 --> 00:57.570 There's a very small or no upper shadow but there is a very long lower shadow, at least twice the height 00:57.570 --> 00:59.400 of the real body. 00:59.700 --> 01:02.620 About this last condition that I've mentioned, 01:02.730 --> 01:09.860 you don't need to buy a ruler and measure the hammer every time. The meta trader will show you open, 01:09.870 --> 01:12.380 close, high and low prices, 01:12.420 --> 01:16.000 if you just put the cursor over the candlestick. 01:16.320 --> 01:19.940 But in any case you don't need to be super rigid about this rule. 01:20.100 --> 01:22.410 You will develop an eye for it. 01:22.650 --> 01:29.340 So the small upper shadow and the long lower shadow are saying that there hasn't been much action over 01:29.340 --> 01:36.750 the opening price because as soon as the session started the bears were in control and immediately pushed 01:36.750 --> 01:40.610 the price down. Before the end of the session, 01:40.650 --> 01:47.640 the bulls managed to push back the price near the opening price recovering all the loss that they had 01:47.700 --> 01:49.440 during the session. 01:49.440 --> 01:51.880 So it is very simple so far. 01:51.900 --> 01:55.100 Sellers had control at the beginning of the session. 01:55.290 --> 02:00.180 Buyers managed to push the price back by the end of the session. 02:00.210 --> 02:02.480 Now last condition is very important 02:02.520 --> 02:05.700 and unfortunately often forgotten. 02:05.700 --> 02:13.860 So always keep it in your mind. The hammer is a very strong reversal signal when it appears in a falling 02:13.860 --> 02:22.950 market, when there is a clear down trend. Here you can see three hammers appearing after a down move. 02:22.950 --> 02:27.600 What's the logic behind this pattern? In the previous sessions, 02:27.600 --> 02:32.870 the market sold off dramatically, then a hammer appears. 02:32.880 --> 02:37.990 Think about what we have said about the hammer. At the beginning of the session, 02:38.040 --> 02:40.420 the sellers are in control. 02:40.440 --> 02:46.310 So nothing new because we have seen that in the previous sessions the price was going down, 02:46.320 --> 02:50.820 so everyone is expecting to see that the price continues to go down. 02:51.240 --> 02:56.990 But, suddenly, the bulls appear and they have the power to push the price back, 02:56.990 --> 02:59.260 near the opening of the session. 02:59.610 --> 03:06.990 This means that after many sessions dominated by the sellers, the price has become attractive enough 03:06.990 --> 03:15.460 to convince the buyers to take action and buy the couple. To have a better understanding of this pattern, 03:15.480 --> 03:21.870 we will go inside it and check the price action that leads into the formation of a candlestick of this 03:21.870 --> 03:30.330 shape. The best way to do it is to identify a hammer and then switch to a lower time frame to check what 03:30.330 --> 03:33.180 happened over the session. 03:33.180 --> 03:37.590 Here we have dollar Japanese yen on a daily chart. 03:37.590 --> 03:44.140 We can see three hammers. The first two highlighted in green didn't really have success. 03:44.250 --> 03:50.220 The price went up after the first hammer, but then it started to go down again. 03:50.250 --> 03:57.810 The second one has the shape of a hammer but I would not consider it after just two bearish sessions. 03:57.840 --> 04:01.590 I can't certainly say that the price was going down. 04:01.590 --> 04:08.890 It looks that at that point the couple was in a sideways trend more than a downtrend. 04:08.910 --> 04:15.660 Last one, the one highlighted in yellow, is the one that we are going to analyze. The candlestick that forms the 04:15.660 --> 04:20.640 hammer pattern appeared on a daily chart on the 17th April, 04:20.850 --> 04:28.690 so the best thing to do is to switch to a hourly chart and check what happened in those 24 hours. 04:29.020 --> 04:36.160 These 24 candles on a one hour chart form the hammer that we have seen on the daily chart. 04:36.540 --> 04:40.920 That's exactly what we have said at the beginning about the hammer. 04:41.130 --> 04:44.230 The sellers start having control of the market, 04:44.370 --> 04:46.710 so the price is going down. 04:46.980 --> 04:52.860 At one point, the price becomes convenient for buyers to open their positions. 04:52.860 --> 05:00.000 So buyers step into the market, the demand increases and the price goes higher. 05:00.000 --> 05:06.600 I want to clarify just last thing, because you will see in many forums that there are a lot of discussions 05:06.600 --> 05:08.080 about this. 05:08.170 --> 05:17.510 Does the colour of the real body matter? Hopefully this figure will leave no other doubts. As you can see 05:17.510 --> 05:23.010 in both cases the price went down a long way and then it came back. 05:23.090 --> 05:29.740 If you got the logic of the pattern, you understand that the important thing is that the buyers recovered 05:29.810 --> 05:32.600 from a very bad start of the session. 05:32.960 --> 05:38.760 So no, the colour of the real body doesn't matter when it comes to the hammer. 05:38.780 --> 05:45.360 There can be a psychological belief that a green body is better than a red body. 05:45.470 --> 05:52.160 But in my experience the market makes no differentiation between red and green real bodies of 05:52.160 --> 05:53.820 this pattern. 05:54.440 --> 05:58.360 It's not about the colour but it's about the size. 05:58.550 --> 06:07.340 The longer the lower shadow, the shorter the upper shadow, the smaller the real body, the more meaningful 06:07.340 --> 06:08.760 the hammer will be.