The Bullish Hammer is a significant candlestick that occurs at the bottom of a trend or during a downtrend and it is called a hammer since it is hammering out a bottom. It is a single candlestick pattern and it has a strong similarity to the Bullish Dragonfly Doji Pattern. In the case of Bullish Dragonfly Doji Pattern, the opening and closing prices are identical whereas the Bullish Hammer has a small real body at the upper end of the trading range.
The overall direction of the market is bearish which is characterized by a downtrend. Then the market opens with a sell off implying the continuation of the downtrend. But during the day, prices suddenly turn upwards, the sell-off is quickly gone and bullish sentiment continues during the day with a closing price at or near to its high for the day which causes the long lower shadow. This means that the market fails to continue in the selling side.
The reliability of Bullish Hammer is low thus it highly requires a confirmation by a green candlestick, a large gap up or a higher close on the next trading day.
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