Understanding Bullish Dragaon Fly Doji and Hammer Pattern - Single Candlestick Patterns

Bullish Candle Stick Patterns

The Dragonfly Doji is a single candlestick pattern which helps traders in setting up directional trades.

The bullish hammer is a significant candlestick pattern that occurs at the bottom of the trend. A hammer consists of a small real body at the upper end of the candlestick with a long lower shadow. The longer the lower shadow the more bullish the pattern.

‘Shadow to real body ratio’.The length of the lower shadow should be at least twice the length of the real body.

           Dragonfly Doji                                                                                                Hammer                                                                                  

A hammer can be of any color as it does not really matter as long as it qualifies ‘the shadow to real body’ ratio. However, it is slightly more comforting to see a green colored real body.

Please note once you initiate the trade you stay in it until either the stop loss or the target is reached. You should not tweak the trade until one of these events occurs. The loss in this particular trade (first hammer) is inevitable. But remember this is a calculated risk and not a mere speculative risk.

A Hammer Doji is a type of bullish reversal candlestick pattern.

Points to consider for recognizing this pattern -

1. There must be a preceding downtrend - As you can see in the image above there is a prior downtrend before the candle formation.
2. It looks like a T letter - The hammer appears like the letter T
3. The opening and closing price almost near or same - The opening price and the closing price are almost same in the candlestick formed.
4. The real body could not be formed or can be green or red
5. It has no or little upper shadow
6. The lower shadow is at least twice of the length of the real body - It Satisfies ‘Shadow to real body ratio’

What is the Psychology behind?

1. The bears continuously drag the price down resulting in a long lower shadow
2. The bulls fight back strongly and defeat the bears by pushing the price above or near the top level, forming a square-like body (i.e. Hammer)
3. The longer the lower shadow the more effective the bullish signal.
4. The next candle has to close above the high of the hammer to confirm the existence of bullish force.

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