The bullish hammer forex strategy is an easy, yet effective method to trade reversals in the market. It doesn’t require a lot of trading rules and therefore very easy to understand for even the novice currency trader.
- Time Frame: Any
- Currency Pairs: Majors + Currency Crosses
- Hammer Candlestick
Hammer Candlestick Defined
The bullish hammer represents a bullish reversal trading pattern made up of one candlestick formed during a downtrend. It’s composed of a long lower wick, small real body near the high and small or no upper wick.
Bullish Hammer Counter Trend Strategy Trading Rules
- Strong down trend in the market.
- Hammer pattern occurs during the down trend.
- Go long at market on the close of the hammer.
- Place safety stop loss at one pip below the lower wick of the hammer.
- Trade objective: 40% ATR (average true range) trading 5 min charts, 75% ATR trading 1 hour charts, 150% ATR trading daily charts.
Example: Hammer Forex Trading Strategy, EUR/USD 5Min Chart
Bullish Hammer pattern occurs during the sharp down trend in the EUR/USD pair. We enter long at 1.3077. Our stop loss is placed 1 pip below the lower wick at 1.3059. The risk on this trade is 18 pips + spread. Our trade was successfully closed for 50 pips of profit (40% of ATR).