Hammer is a well renowned single candlestick pattern where we look for candles looking similar to hammer. It is a pattern where a candle generally has high equal to open or close of the stock and wick is twice the size of the body. Formation of a hammer means bears tried to push prices down but bulls came back in picture and pushed the prices up which means bulls have upper hand, to take advantage of this hammer we trade hammer as follows:
- Look for hammers in daily time frames in stocks which are traded in futures and options segment.
- Buy the particular stock on the same day at 3:15 when the candle looks like a hammer.
- Place a stop loss at the low of the hammer.
- Exit your position when profits are twice the risk taken or 3 days after the position, whichever is early.