Crypto trading is a delicate activity that needs diligence and a willingness to learn new things so as to have a successful journey in the market. To enter the market and make specific trades as a crypto trader, you must conduct extensive research using various tools. One of the tools that a crypto trader must use before entering certain long and short positions is the hammer candlestick. 

Hammer candlesticks are very important as they help users not fall victim to the effects of greed or fear in the crypto market. Since the market is constantly fluctuating, every expert trader must combine hammer candlesticks with other tools to make the most of their trades. 

This article seeks to reveal all you need to know about candlestick charts, including their meaning, how hammer candlesticks work, and the pros and cons of this trading tool. 

What are Candlestick Charts?

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Beginner traders often think that candlestick charts are very complex to understand. However, with proper explanations, they can easily be understood by anyone. 

A candlestick chart is a financial chart used by crypto traders and other traders in different financial markets to conduct trades properly. A candlestick chart graphically represents the price movement of a cryptocurrency or any other financial asset over a certain period of time. A candlestick does not necessarily have to be measured in seconds. A candlestick can be measured in seconds, minutes, hours, days, weeks, months, or even years, depending on the timeframe. 

Using candlesticks, one can predict the price movements of certain assets in the financial markets. This is a major reason why expert crypto traders have used different candlesticks to analyse the market before trading. 

How Does Hammer Candlestick Work?

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A hammer candlestick is a type of candlestick chart used by crypto traders to analyse the market before making certain investments in the crypto market. As the name suggests, the hammer candlestick is any candlestick with a small body and another smaller and longer wick. 

The hammer candlestick is mainly found at the bottom of a downtrend, which usually signals that the crypto market is about to go on a bullish trend. However, the hammer candlestick does not only show a bullish trend; there are two different hammer candlesticks—bullish and bearish. 

Bullish Hammers 

A bullish hammer shows greed in the crypto market; in other words, many crypto traders are making buy decisions in the crypto market. The bullish Hammers show an increase in the number of purchases made by traders in the market. 

For a bullish hammer to be formed, the closing price has to be above the entering price. In other words, the bullish hammer shows that crypto traders are making a lot of profit on the market. 

Bearish Hammers 

A bearish hammer shows fear in the crypto market; this means more people are under sell pressure or afraid to trade on the market. Another name that the bearish hammer is often called is the hanging man, and it mostly happens when the closing price is lower than the entry price. 

This means that crypto trends go downward and can cause many losses in the market whenever there’s a bearish hammer. It shows that the crypto market is experiencing selling pressure and a reversal to the downside. 

Pros and Cons of Hammer Candlestick

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Every tool used in analysing the crypto market has its pros and cons; no tool is perfect when showing traders certain information about the market. The same applies to the hammer candlestick which has its advantages and disadvantages. 

Pros of Hammer Candlestick 

Below are some benefits a crypto trader can gain from using the hammer candlestick. 

• Multiple Timeframes 

One of the best things about hammer candlesticks is that they can fit into different time frames instead of sticking to one. Traders can easily adjust the time frame to meet their needs when using the hammer candlestick. They can change it to seconds or even years. 

• Different Options 

The hammer candlestick is very versatile and can be used in multiple markets—a reason why many crypto traders use it for their market analysis. While used in the crypto market, their ability to spot trend reversals, whether bearish or bullish, makes them stand out. 

• It helps Other Reversal Indicators. 

One advantage of hammer candlesticks over their alternatives is that they can act as confirmation for other reversal indicators. 

Cons of Hammer Candlestick 

Below are some drawbacks many traders have witnessed while using the hammer candlestick. 

• Lack of Guarantee 

One of the major drawbacks of hammer candlesticks is the need to guarantee that their predictions are correct. Most of the analysis that a hammer candlestick makes is based on several contexts, making some of the data it provides inaccurate. 

• Not Reliable 

The truth is that, despite how good hammer candlesticks can be, they can’t be reliable in analysing the market alone. In other words, they need to be combined with other market analysis tools for a trader to get reliable information. 

• No Price Target 

The hammer candlestick has no price target, so it can be challenging for a crypto trader to figure out the amount they would be making if they should enter a trade. When a crypto trader has no price target before entering a trade, it might conflict with some of their risk management strategies. 

Wrapping Up 

Before starting any trade, the candlestick chart is essential to a crypto trader’s research. There are many types of candlestick charts, including the hammer candlestick. 

The hammer candlestick comes in different forms, such as bearish and bullish Hammers. Like other tools used in analysing the crypto market, the hammer candlestick has its benefits and disadvantages. BingX, as a leading global copy trading platform, has been making technological innovations that will benefit traders and help users maximise their profits. This includes Candlestick patterns, trading view access, and a variety of other features.

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