A Hammer Doji is a type of bullish reversal candlestick pattern that can be used in technical analysis.
When candles of different shapes are arranged in a certain way on the chart, they can indicate the next price movement. They can be either bullish reversal or bearish reversal indications. Together with chart patterns, and other points of the IDDA approach to strategy development, candlestick patterns can give us more accurate signals of the next price action.
The arrangement of candles on the charts can often times be a signal for a trend change, or a reversal.
Hammer Doji Candlestick
A Hammer Doji is a type of a Doji candle.
"What the heck is a Doji?" you ask?
"Doji" means "same [time]" in the Japanese language
Another Japanese word to add to your dictionary! Doji candles have equal(same) open and close prices. That is why their bodies are nothing but a line. You can’t even distinguish their color.
Depending on the length of the shadows of a Doji candle, it can be put into different categories such as the “Long-Legged Doji,” the “Dragon Fly Doji,” and the “Gravestone Doji.”
Doji Spirit: A Doji by itself is neither bullish nor bearish. But when it comes after other candles, it can have very powerful interpretations.
One of those interpretations is the Hammer Doji, and is spotted when a Dragon Fly Doji is followed by a strong bullish candlestick.
A Hammer Doji is a bullish reversal pattern that happens during a downtrend. It kind of looks like a hammer that is trying to "hammer-out" a bottom on the chart, and it signals that the price could start rising soon.
How to Make Some Pips off a Hammer Doji
As we have talked about this in our IDDA approach, this candlestick pattern is not necessarily a concrete bullish signal on its own. It rather helps us confirm a bullish scenario based on other IDDA points, such as a bullish Ichimoku scenario bundled with bullish fundamentals.
Here is how an Invest Diva could make money off a Hammer Doji, after checking with other forms of the InvestDiva Diamond, or the IDDA approach to trading:
1. Place a limit buy entry order a little below the current price to catch a potential pullback
2. Set a limit to take profit based on the Ichimoku - Fibonacci Combo strategy
3. Refrain from being greedy.
4. Enjoy your newly earned pips.
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This article was originally published on InvestDiva.com.