The Hammer and the Hangman Candlestick Patterns are Important Reversal Signals

Illustration: Currency

The hammer, the hangman and the doji are some of the few most important candlestick patterns that every trader should recognize. Both the hammer and the hangman have a small real body and a long lower shadow with almost no upper shadow. To be a hammer or a hangman, the shadow should be at least two times the body (the longer the shadow the more significant the pattern). However, it is very easy to confuse hammer with the hangman.

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Combining Doji Candlestick Patterns with Bollinger Bands and Stochastic

Illustration: Forex Chart

Doji is considered to be one of the most important candlestick patterns. Appearance of a Doji signals the beginning of a minor or an intermediate trend reversal. Failing to recognize the Doji pattern, means you run the risk of buying at the top or staying far too long in a trade. As a trader, you must be able to immediately recognize the four different type of Dojis. The four type of Dojis are:

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Harami – An Important Trend Reversal Candlestick Pattern

Harami Pattern

Harami is an important trend reversal pattern. It is a two day candlestick pattern with the candle of the setup day longer than the candle of the signal day. Harami is the Japanese word for pregnant. If you draw this a pattern, it will look like a pregnant woman. The pattern can be bullish as well as bearish.

In case of the bullish harami, the first day is a bearish candle that occurs in a downtrend. On the second day, bulls enter the market and start moving the prices higher but not with much success as the price close lower than the open of the first day and the first day’s high is not surpassed. However, when this pattern appears it culminates in a trend reversal.

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