pge_temp

Hammer

A hammer formation is a bullish formation that generally occurs at the end of a declining price trend. It is identified by its small real body at the higher side of the range. It can be either filled or open, a down day or an up day. The bottom tail should be at least twice the size of the real body and the upper tail should only be small, if it exists at all.

Hanging man

A hanging man formation is exactly the same as the hammer formation, except that it occurs at the end of an up trend. Once again the real body lies at the top of the range with the lower tail at least twice as long as the body. The upper tail should be short if it can be found at all. The colour of the body is not important, but just like the hammer formation, it is best to seek confirmation of a trend reversal with a follow-up signal the next day.

In this case a probe against the trend appears to have been rejected. It’s hard to imagine how the same formation, could generate opposite signals.

It’s not just the location at the end of a trend that creates or generates the signal. It’s the indecision of the market and a potential corresponding change that is being signalled by this formation, in both of the above cases.

The close proximity of the open and closing prices relative to the range, which in both cases is extreme on the downside, reflect a market that is relatively undecided about direction. If this occurs at the end of a trend, up or down, it would then stand to reason that a potential change is being signalled.



ASX Charting Course
Chapter 44 Candlesticks Formations
Single Bar Formations Hammer A hammer formation is a bullish formation that generally occurs at the end of a declining price trend. It is identified by its small real body at the higher side of the range. It can be either filled or open, a down day or an up day. The bottom tail should be at least twice the size of the real body and the upper tail should only be small, if it exists at all.
Fig 70
It’s the length of the tail relative to the body that creates the signal. The tail could be viewed as a sign of rejection of lower prices and therefore a possible reversal of the trend. Taken alone it’s not really a definitive signal and therefore it’s a good idea to seek confirmation with some sort of an up day signal, the following day. The stronger the up day signal, the better. Volume can also be used to ascertain the probability of a turn around, in this case and increase in volume. Hanging man A hanging man formation is exactly the same as the hammer formation, except that it occurs at the end of an up trend. Once again the real body lies at the top of the range with the lower tail at least twice as long as the body. The upper tail should be short if it can be found at all. The colour of the body is not important, but just like the hammer formation, it is best to seek confirmation of a trend reversal with a follow-up signal the next day.
Fig 71
In this case a probe against the trend appears to have been rejected. It’s hard to imagine how the same formation, could generate opposite signals. It’s not just the location at the end of a trend that creates or generates the signal. It’s the indecision of the market and a potential corresponding change that is being signalled by this formation, in both of the above cases. The close proximity of the open and closing prices relative to the range, which in both cases is extreme on the downside, reflect a market that is relatively undecided about direction. If this occurs at the end of a trend, up or down, it would then stand to reason that a potential change is being signalled.
Craig MacLean is a Futures Adviser Licensed under the Australian Securities Commission, Corporations Law. The writer accepts no responsibility for any losses incurred from any action or inaction derived from the advice in this report.

ASX Charting Course

Chapter 44

Candlesticks

Formations

Single Bar Formations

Hammer

Hanging man