By Fabiano Trevisiol
GUIDE TO TECHNICAL ANALYSIS OF PRICE ACTION
IN PATTERN HARAMI – HAMMER – HANGING MAN – SHOOTING STAR
In this new article we see some important instructional charts configurations and shapes of candles that can be of help to those who make traditional trading forex, which both in indexes or CFD, that would be the contracts for difference, using the price action and technical analysis.
Today we will see the technical analysis pattern, HARAMI, HAMMMER, HANGING MAN, SHOOTING STAR
It is very helpful to understand these concepts to improve, indeed study and forex strategy.
The harami is an interesting reversal figure frequently in markets, more in indexes then in forex, especially in conjunction with the gap, but not necessarily. In essence we have a formation of 2 candles. The first candle is the same colour as the trend, the second candle has a smaller body, and is the opposite colour and is contained in the previous candle. It is very important that the opening and closing of the second candle is within the previous candle. This usually happens during a GAP, but often we can consider HARAMI pattern even if you close the previous candle corresponds exactly to the opening of the next candle.
Example of a Bullish Harami
As mentioned the harami is a figure, you must reverse a trend in favour of the first candle’s color, in the case of a bullish harami we find ourselves in a down trend. The harami there indicates that the trend is ending, is running low and could be a retracement.
The two candles must be of the opposite color.
The trend in favour of the first candle (red candle first bearish, bullish for first candle green) must be long and evidents.
The candle, at least the body, must be contained in the previous
It is preferable to use this signal along with other signals or indexes that give us confirmation of exhaustion and a probable trend retracement, such as a period of compression or the presence of a major key.
The harami is in fact an inside bar. The inside bar I discussed in this article.
This second chart is the daily a index, having opening and closing the market at morning and night, is full of gaps and therefore it is easier to identify perfect harami, gap, which instead in forex are rare because the forex market is open h24 OTC or closes once per week and weekend gaps are only possible at that moment.
Ok, some of you now are asking what is a gap?
Briefly: a gap is a price gap between the closing of a candle and the opening of the next candle.
This phenomenon in indexes and in the titles is almost daily because the market trading closes in the evening and the morning resumes, meanwhile the price moves and in the morning the price could be varied from that of the previous evening and then there will be a “jump” between closure of the previous candle and opening of the new candle.
In Forex this phenomenon only occurs between Friday evening and Sunday evening, which is generally the only time when the market is closed. The interesting thing is that especially in forex this gap serves as a magnet and the price tends to go practically always statistic to retest the closing price of the day before closing the “hole” formed. Usually immediately in the hours after Sunday night’s opening, sometimes after a few days or a week. Another phenomenon interesting to know is that when this gap closes often turns into key level, resistance or support and the price is then rejected in the opposite direction, at least for a while.
Maybe about this gap that better to talk in an article especially written for this purpose.
Some examples of gap.
HAMMMER & HANGING MAN
The hammer and hanging man are formed by a single candle, the two candles above represent the hammer (bullish) or the hanging man (bearish).
In this example, the first candle is a hammer, the second a hanging man.
Hammer & hanging man
Hammer is, indeed the shape of the candle is precisely that of a hammer, a small body with a shadow (stem) at least twice to the body, green body. This signal appears at the bottom of a down trend, it means it is going to reverse the trend and at least temporarily we see a bullish retracement.Corresponds perfectly to what some call pin bar or pinocchio candle.
Example of Hammer
HANGING MAN & SHOOTING STAR
The hanging man — man hanged, is done as the hammer, body opposite-colored or red and are in a different location — a top a uptrend, this candle a top a uptrend over to look like a “man hanged” hence the nickname, it indicates that the trend is going to end and we can have a retracement down at least temporarily. It is in fact a pin bar reverse.
In the chart below we see a classic example of a hanging man, and in the same situation to confirm the inversion looks a shooting star, this signal is the opposite of the ‘hammer, it means that the trend is changing from uptrend to downtrend.
Example of a hanging man and the shooting star
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