Hammers, Haramis, and Inverted Hammers with Gaps Up

Hammers, Haramis, and Inverted Hammers with Gaps Up

“If you are on the right track, if you have this inner knowledge, then nobody can turn you off no matter what they say.”

Although the Doji illustrates indecision and creates a high-powered move fol­lowed by a gap up, do not disregard that same effect following the other major candlestick buy signals at the bottom. The Hammer, Harami, and the inverted Hammer signify a potential reversal when seen in the oversold condition. Con­firmation of a reversal requires positive trading the following day. As with the Doji, positive trading represented with a gap up is that much more compelling evidence that the reversal has occurred. The force with which that new trend may move is demonstrated by the gap up in price the following day.

The candlestick signal is the alert that a potential change of investor sentiment may be occurring, especially when it occurs in oversold condition. As illus­trated in Fig.4-12, the Marathon Oil Corp. chart, the Hammer/Harami signal gave a good indication that the 200-day moving average should act as support. This becomes better confirmed the following day when the price gaps up. It becomes more obvious that the 200-day moving average acted as the support when buyers showed great zeal to get into this position, causing the next day’s gap up.

Being able to use a visual analysis makes interpreting investor sentiment at important levels very easy. Utilizing the knowledge of what the signal conveys and what a gap up conveys enhances strong trend identification.