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What are Hammer and Inverted Hammer candlestick patterns?

The hammer and the inverted hammer candlestick patterns are among the most popular single-candle formations. They’ve been named as such because of their visual resemblance to a hammer – a short body on one end and a long wick on another. The hammers’ description may sound similar to a <a href="/uk/trading-academy/indicators-and-patterns/doji-candlestick-pattern/">Doji candle</a>. However, while the body of a doji candle is so short that it looks like a horizontal line, both hammer and inverted hammer have slightly longer, visible bodies. Let’s see how they look.  <h2 paraeid="{a93e94ed-6fea-4c9f-a350-f7bc6677a4d1}{52}" paraid="1878194966"> Hammer candlestick pattern </h2> In a hammer candle, the opening, closing and high prices are located near each other creating a body at the top, while a long wick extends lower. The wick is usually twice as big as the body. <img alt="Bearish and bullish Hammer candlestick pattern" src="/getmedia/4d7f35dd-f359-4793-90df-61e310983c66/Bearish-and-bullish-Hammer-candlestick-pattern.png" /> Irrespective of the colour of the body, both examples on the image above are hammers. The green candle is usually considered a stronger signal as the close occurs at the top of the candle, signalling strong momentum. <h2>Inverted hammer candlestick pattern</h2> An inverted hammer is exactly what the name itself suggests – a hammer turned upside down. A long upper shadow (wick), accompanied by the closing, opening and low prices are all registered near the same level at the bottom. Again, the upper wick should be twice as big as the body. <img alt="Bullish and bearish Inverted Hammer candlestick pattern" src="/getmedia/d6575102-a644-49c1-b119-5e9d0d6b2389/Bullish-and-bearish-Inverted-Hammer-candlestick-pattern.png" /> Like with a hammer, the green version of the inverted hammer is more bullish because of its higher close. <h2>How do hammer and inverted hammer candles work?</h2> As noted earlier, both of these patterns are considered to be powerful reversal patterns. At some point in a downtrend, the bulls increase their presence and push the price higher, causing a higher closing. That's when the hammer pattern occurs, signalling a potential trend, as the bears are unable to prevent a higher close. It is exactly the closing price at the top of a candle that signals that the bulls overpowered the bears and gained control over the market. The inverted hammer pattern also generates the same signal but in a different manner. This candle's opening and closing prices are at the bottom, indicating selling pressure and domination of bears. However, the long wick at the top of the candle means that bulls were powerful enough to push the price higher and suggests a potential reversal. The hammer candle, with its closing price at the top, is considered to provide a stronger bullish reversal pattern than the inverted hammer, with the closing price at the bottom. <h2>How to trade with a hammer and inverted hammer</h2> A trading strategy with hammer and inverted hammer candlesticks depends on a trader's risk appetite. As both candles are bullish signals, traders with a high risk appetite may open a position as soon as they see this pattern formed, anticipating trend reversal. In this case, the hammer's closing price often serves as an entry point, and its low price (the end of the wick) can suggest a stop loss. Risk-averse traders may wait for the other two-three candles to close for trend confirmation. In either scenario, most traders go long once they confirm a hammer or an inverted hammer. The image below shows an example of how the downtrend reversed and started moving upward right after the hammer appeared. <img alt="Hammer candle and trend reversal in a price chart" src="/getmedia/2f428ae5-c105-4678-9b38-90ecb94aa8ba/Hammer-candle-and-trend-reversal-in-a-price-chart.png" /> On the other hand, if you have a short position open in a downtrend, both hammer candles may be considered an exit signal before the trend reversal. It is important to note that just like any other candlestick pattern, neither hammer nor inverted hammer is a direct trading signal but a suggestion. There is always a possibility that the market will move in the opposite direction of your prediction. Many traders use additional technical analysis tools to confirm their findings and get more trading insights. For example, trendlines can confirm the price breakout, as illustrated on the image below. <img alt="Hammer candle and trendlines in a price chart" src="/getmedia/bd60c4c1-e3f1-4f2e-9a16-9bb0f8de7a21/Hammer-candle-and-trendlines-in-a-price-chart.png" /> Moreover, it can be helpful to determine horizontal support and resistance levels to place stop-loss and take-profit orders and update them as the market moves. Risk management tools are essential in every trading strategy. <img alt="Hammer candle and support and resistance in a price chart" src="/getmedia/9c94caa6-fcb5-4b54-b07d-875738df6044/Hammer-candle-and-support-and-resistance-in-a-price-chart.png" /> <h2>Hammers vs shooting star vs hanging man</h2> Traders who are more familiar with candlesticks may notice that both hammer and inverted hammer look exactly like the hanging man and shooting star patterns. They are, indeed, very alike. The main difference is that both the hanging man and shooting star occur in an uptrend, while both hammers take place in a downtrend. <img alt="Hammer vs Inverted Hammer vs Hanging Man vs Shooting Star" src="/getmedia/ac940462-55a2-4ce2-845a-4e21ab058a38/Hammer-vs-Inverted-Hammer-vs-Hanging-Man-vs-Shooting-Star.png" /> In our next article, we'll explain how <a href="/uk/trading-academy/indicators-and-patterns/hanging-man-pattern/">hanging man and shooting star candlestick patterns</a> work and how you can identify trading opportunities with their help.   Meanwhile, create a risk-free demo account and practise finding Hammer and Inverted Hammer candles in a chart.

6 min readBeginners

Forex Market events Spread Betting

Foreign policy and forex: how US presidential elections influence global currency markets

Every four years, the United States gears up for its presidential elections, with the whole world waiting in baited anticipation. Traders and investors across the globe closely monitor campaign trails, proposed policies, and public polls, not just for political curiosity, but for clues on how the elections and its eventual winner would affect the global financial markets. As the President of the United States, whoever wins can reshape the global economic landscape opening up opportunities for traders. In this article, we’ll go through how US presidential elections can influence the forex market. US foreign policy decisions, often significantly influenced by the outcome of presidential elections, can have far-reaching effects on global economic relations, trade agreements, and geopolitical stability. These factors collectively play a crucial role in defining the strength and movement of major currencies, including the US dollar. For forex traders, it is extremely important to stay up to date with the news during election years. Historically speaking, the run-up towards the US elections have led to major price swings in currency pairs, such as EUR/USD, GBP/USD, and USD/JPY. <h2>Historical impact of the US presidential elections on forex pairs</h2> While historical data is not a sure guarantee that the market will move the same way, it is likely that prior circumstances will cause the same price movements. It’s important to note that the price movements of currency pairs are caused by the accumulation of a multitude of factors, with the US presidential elections being one of the major reasons. Using EUR/USD and USD/JPY as examples, we’ll look at the price movements in November 2016 and 2020, the pivotal month of the US presidential elections. <h2>EUR/USD 2016</h2> This pair often reacts to shifts in US-EU relations. Trade policies that lean towards protectionism or changes in NATO funding have historically caused volatility. Public sentiment on the candidate that’s favoured to win, and their policies have led to fluctuations in this pair as traders speculated on the future of US-EU economic relations. <img alt="" src="/getmedia/037fbef6-8aa1-459e-803c-53ea783ca2df/market-events-fereign-policy-and-forex-chart-article-image.jpg" />   November 1-30, 2016   Let’s look at the price movements of EUR/USD in November 2016, when Donald Trump won with 304 votes as opposed to the 227 votes for the Democrat Hillary Clinton. The price of EUR/USD slipped from 1.1292 to 1.0515, showing a massive 7.4% decrease. Following Trump's victory over Clinton, there was an immediate weakening of the Euro and a strengthening of the US dollar. This can be attributed to various factors influenced by the election results, such as:    <ul> <li>Trump's victory added to the political uncertainty in the Eurozone. This uncertainty was expected to slow Eurozone growth and complicate the job of the European Central Bank (ECB), thereby undermining the Euro</li> <li>Trump's fiscal stimulus agenda, which proposed increasing government spending and significant tax cuts, particularly reducing corporate tax rates, was expected to alter the competitiveness of American businesses</li> <li>Trump's pledge to implement tariffs on imports was likely to lower the volume of imports into the US, supporting the US dollar’s strength. Additionally, any reduction in immigration could impact remittances abroad</li> <li>With Trump’s victory, experts expected the Fed to take a hawkish stance and hike interest rates in December 2016</li> </ul>   <h2>EUR/USD 2020</h2> <img alt="" src="/getmedia/784d6b87-ae2d-44b4-999d-fbe3fa37240f/market-events-fereign-policy-and-forex-chart2-article-image.jpg" />   November 1 – 30, 2020   In November 2020, Joseph Biden Jr. won the quadrennial presidential election. Biden's in the 2020 US presidential election was seen as a positive development for emerging markets and led to a weakening of the US dollar against these currencies. The market's reaction was influenced by expectations of normalised trade policies, improved global growth prospects, and uncertainties regarding future fiscal policies in the US. In the span of 5 weeks, the price of EUR/USD rose by 4.87%, from 1.1602 to 1.2167. Several reasons caused this reaction, including the factors below:   <ul> <li>The clarity that emerged with Biden's win improved global market sentiment. There were high expectations of US foreign policy and trade relations stabilising, easing tensions and boosting global economy. Wall Street had a strong performance during this period, marking its best week since early April at the time</li> <li>Biden's presidency was anticipated to mark a significant shift from the Trump administration's approach, especially in terms of foreign policy and trade relations. The prospect of a cooldown in trade tensions, particularly with China, was viewed positively by the markets</li> <li>The anticipation of reduced trade tensions under Biden's administration led to increased capital flow back into emerging markets. The MSCI Emerging Markets Index (EEM), for instance, closed at its highest point in over two years </li> <li>Biden's win raised expectations for fiscal stimulus, which was passed to support economic recovery in the US</li> </ul> <h2>USD/JPY 2016</h2> <img alt="" src="/getmedia/ad99ea26-7bf7-44ea-ae13-11618e18ec0f/market-events-fereign-policy-and-forex-chart3-article-image.jpg" /> In November 2016, USD/JPY rose from 101.75 to 118.691, recording a massive 17.31% jump in just one month. This major rise could be attributed to several factors, although experts note that Donald Trump’s victory was a key driver. Here are some reasons why the USD was expected to strengthen following Trump’s win:   <ul> <li>Trump’s proposed policies during the 2016 debates were considered more likely to lead to fiscal expansion, higher inflation, and potentially more aggressive interest rate hikes by the Federal Reserve</li> <li>Trump's promises of significant infrastructure spending, tax cuts, and deregulation raised expectations of accelerated economic growth and higher inflation in the US</li> <li>The Federal Reserve was already on a path to tightening monetary policy in November 2016, whereas the Bank of Japan maintained an ultra-loose monetary policy to combat deflation</li> <li>The Japanese yen is often sought as a safe-haven asset in times of market uncertainty and turmoil. The initial reaction to Trump's win was uncertainty, but as markets began to focus on his pro-growth policies, there was a shift in sentiment that favoured riskier assets, leading to a decrease in demand for the yen</li> <li>As global markets absorbed the potential impacts of Trump's victory, there was a shift towards riskier investments. This change in sentiment often leads to reduced demand for safe-haven currencies like the yen and gold (XAUUSD)</li> <li>Trump’s critical stance on trade agreements and potential changes to global trade policies created expectations of a stronger US economy, further supporting the dollar against the yen</li> </ul> <h2>USD/JPY 2020</h2> <img alt="" src="/getmedia/fdc90066-bc01-46d0-9efa-c49fc0cfbdba/market-events-fereign-policy-and-forex-chart4-article-image.jpg" /> Joe Biden’s victory in 2020 caused a rise in the price of USD/JPY. This is primarily due to investors expecting an easing of trade tensions, encouraging riskier investments. Safe haven assets, such as the Japanese yen, were sidelined for high interest yielding assets. <h2>Trading the US elections with ThinkMarkets</h2> The US election opens a wide range of opportunities for traders. Whether you’re trading forex pairs, commodities, stocks, indices, or even futures, it’s important to rely on a data-driven strategy for better results. This is where ThinkMarkets comes in. We provide our traders with access to an extensive library of guides and feature-rich platforms designed to boost your trading. Stay ahead of the curve and create an account today! Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

6 min readExperienced

Forex Spread Betting

ThinkMarkets’ all-around guide to spread betting

Discover an alternative way to CFD trading with spread betting. Check out our all-around guide and become a knowledgeable spread better in no time!    <h2 aria-level="2" lang="EN-US" paraeid="{98782ed2-1584-42bc-9b6e-f7ff4d4fd9bf}{41}" paraid="1722769441" role="heading" xml:lang="EN-US">What is spread betting?</h2>   Spread betting is an innovative financial strategy that allows you to speculate on the price movements of various financial markets – including forex, indices, and commodities – without owning the underlying assets.   The key principle is simple: you bet a certain amount of money per point of movement in the market. If your prediction is correct, you earn multiples of your stake for every point the market moves in your favour. On the other hand, you lose multiples of your stake for every point the market moves against your prediction.   Spread betting offers a high degree of flexibility, making it a popular choice among traders.   <h2 aria-level="2" lang="EN-US" paraeid="{98782ed2-1584-42bc-9b6e-f7ff4d4fd9bf}{196}" paraid="1381132088" role="heading" xml:lang="EN-US">Spread betting vs. CFD trading</h2>   Spread betting and CFD trading are two sides of the same coin. While they may share major similarities, they also have distinct characteristics that set them apart. <h3 aria-level="3" lang="EN-US" paraeid="{c18c692f-b8e0-4eaf-b54b-b660e9642275}{74}" paraid="1353468910" role="heading" xml:lang="EN-US"> Similarities</h3>   Here are some commonalities between spread betting and CFD trading:   <ul> <li lang="EN-US" paraeid="{f4a163aa-99b2-4e64-89f2-f513989f89d6}{255}" paraid="1051782352" xml:lang="EN-US">Both are forms of derivative trading, providing access to global financial markets without ownership of the underlying asset.</li> <li lang="EN-US" paraeid="{8c04c440-e1ee-450f-8885-5483a1986c5f}{26}" paraid="1413569791" xml:lang="EN-US">There is an opportunity to profit from both rising and falling prices of instruments.</li> <li lang="EN-US" paraeid="{81ac6307-d36f-4481-9ca6-9715ea24a60c}{163}" paraid="1898764181" xml:lang="EN-US">Leverage is available, allowing spread betters and traders to open large positions with a relatively small amount of capital.</li> </ul>   <h3 lang="EN-US" paraeid="{6d5824b7-b140-41fb-9e73-d2afa5a35fde}{15}" paraid="1715095146" xml:lang="EN-US">Differences</h3>   Here are the differences between spread betting and CFD trading:   <ul> <li lang="EN-US" paraeid="{a527d36b-ae5d-41f2-8cb4-e46e7f99aa0f}{70}" paraid="724486527" xml:lang="EN-US">One key benefit of spread betting is that it is free from Capital Gains Tax*, while profits from CFD trading are subject to tax.</li> <li lang="EN-US" paraeid="{12cd94dc-550c-49d0-9ddb-5a6701760ea7}{26}" paraid="2138015435" xml:lang="EN-US">In spread betting, all of the costs are included in the spread. Meanwhile, CFD trading may involve commissions, depending on the trading conditions set by your broker.</li> <li lang="EN-US" paraeid="{2061edb1-5262-4553-9c3e-42b15fe9a184}{249}" paraid="175270194" xml:lang="EN-US">Spread betting is often limited to forex, indices, and commodities, while CFDs typically offer broader market access, including individual stocks, ETFs, and futures contracts.</li> <li lang="EN-US" paraeid="{5278b7d5-da8f-499b-b17b-83138d301723}{223}" paraid="740594330" xml:lang="EN-US">In spread betting, profits and losses are calculated in the currency of the bet per point movement, while in CFD trading, they are based on the total number of contract units multiplied by the value of each contract.</li> </ul> * - Tax laws are subject to change and depend on the jurisdiction in your country of residence.  Here’s a table to help you visualise it easier.   <table aria-rowcount="8" border="1" data-tablelook="1696" data-tablestyle="MsoTableGrid"> <tbody> <tr aria-rowindex="1" role="row"> <td colspan="3" data-celllook="0" role="rowheader" rowspan="1"> Spread betting vs CFD trading  </td> </tr> <tr aria-rowindex="2" role="row"> <td colspan="1" data-celllook="0"> </td> <td colspan="1" data-celllook="0"> Spread betting  </td> <td colspan="1" data-celllook="0"> CFD trading  </td> </tr> <tr aria-rowindex="3" role="row"> <td data-celllook="0" role="rowheader"> Non-ownership of assets  </td> <td data-celllook="0"> Yes </td> <td data-celllook="0"> Yes  </td> </tr> <tr aria-rowindex="4" role="row"> <td data-celllook="0" role="rowheader"> Profit from falling and rising prices  </td> <td data-celllook="0"> Yes  </td> <td data-celllook="0"> Yes  </td> </tr> <tr aria-rowindex="5" role="row"> <td data-celllook="0" role="rowheader"> Leverage  </td> <td data-celllook="0"> Yes  </td> <td data-celllook="0"> Yes  </td> </tr> <tr aria-rowindex="6" role="row"> <td data-celllook="0" role="rowheader"> Tax-free  </td> <td data-celllook="0"> Yes  </td> <td data-celllook="0"> No  </td> </tr> <tr aria-rowindex="7" role="row"> <td data-celllook="0" role="rowheader"> Costs  </td> <td data-celllook="0"> Spreads  </td> <td data-celllook="0"> Spreads and/or commission  </td> </tr> <tr aria-rowindex="8" role="row"> <td data-celllook="0" role="rowheader"> Markets  </td> <td data-celllook="0"> Forex, indices, commodities  </td> <td data-celllook="0"> Forex, stocks, indices, commodities, cryptocurrencies, ETFs, futures  </td> </tr> </tbody> </table>   Spread betting scenario with EUR/USD   Let’s go through a spread betting winning and losing scenario to understand it further.   You spread bet a long position of EUR/USD at £10 per point, predicting that Fibre will rise in price.   <table aria-rowcount="2" border="1" data-tablelook="1696" data-tablestyle="MsoTableGrid"> <tbody> <tr aria-rowindex="1" role="row"> <td data-celllook="0" role="rowheader"> Winning case  </td> <td data-celllook="0" role="columnheader"> Losing case  </td> </tr> <tr aria-rowindex="2" role="row"> <td data-celllook="0" role="rowheader"> If the price of EUR/USD moves from 1.15 to 1.1550, you gain 50 points.  The calculation would be:  £10 x 50 points = £500 profit  </td> <td data-celllook="0"> If the price of EUR/USD moves from 1.15 to 1.1450, you lose 50 points.  The calculation would be  -£10 x 50 points = £500 loss  </td> </tr> </tbody> </table>   Risk management, such as take-profit and stop-loss orders, is essential to avoid bigger than expected losses.    <h2 aria-level="2" lang="EN-US" paraeid="{aea75930-7953-405d-95fd-e226a6fec6b5}{25}" paraid="647369111" role="heading" xml:lang="EN-US">Why spread bet with ThinkMarkets?   </h2> As a leading broker in the spread betting and CFD trading industry, here are the advantages that ThinkMarkets offers:   <ul> <li>Access to financial markets</li> </ul> Spread bet on a diverse range of markets, including major forex pairs, global indices, and precious metals.    <ul> <li aria-level="3" lang="EN-US" paraeid="{453485db-3864-4838-8584-3dedf30e3658}{53}" paraid="1764749868" role="heading" xml:lang="EN-US">Advanced and powerful platforms </li> </ul> Spread betting recently launched on ThinkTrader, our proprietary, award-winning web and mobile trading platform. Equipped with state-of-the-art technology, ThinkTrader is designed to take your spread betting experience to the next level. Spread betting is also available on both MetaTrader 4 and 5.   <ul> <li aria-level="3" lang="EN-US" paraeid="{d64cc7e8-69d0-4805-aff5-49ed8f9518c6}{121}" paraid="1978819375" role="heading" xml:lang="EN-US">FSCS insurance </li> </ul> As a regulated entity of the Financial Conduct Authority (FCA), ThinkMarkets clients receive automatic FSCS coverage of up to £85,000.    <ul> <li aria-level="3" lang="EN-US" paraeid="{feb0beb7-d8ae-4aa4-8d46-35fe150576f7}{45}" paraid="1507508952" role="heading" xml:lang="EN-US">World-class client support </li> </ul> Our dedicated client support team is ready to assist you in over 20 languages, 24/7.    <ul> <li aria-level="3" lang="EN-US" paraeid="{e065062a-648c-40c4-b04b-df89f49a1cdf}{159}" paraid="768898947" role="heading" xml:lang="EN-US">ThinkPortal </li> </ul> Account management and funding is easy with ThinkPortal, available on both web and mobile, and enabled with convenient payment solutions.    <h2 aria-level="2" lang="EN-US" paraeid="{216b3c56-c139-47d8-8bab-0d5027876545}{231}" paraid="1903367425" role="heading" xml:lang="EN-US">How to start with spread betting   </h2> <ul> <li aria-level="3" lang="EN-US" paraeid="{084099a1-6b42-4255-88f5-ed763fdf5563}{178}" paraid="1879674606" role="heading" xml:lang="EN-US">Stay informed </li> </ul> Keep up with market trends and news. Our clients get access to a global economic calendar and a vast library of educational resources, all designed to help traders like you make informed decisions.    <ul> <li aria-level="3" lang="EN-US" paraeid="{e25cd808-05ad-4c45-8fc6-b28e9d6c8e4d}{184}" paraid="239443366" role="heading" xml:lang="EN-US">Manage your risk </li> </ul> As spread betting involves leverage, it carries a high amount of risk. Always place take-profit and stop-loss orders to secure your winnings or manage your potential losses.     <ul> <li aria-level="3" lang="EN-US" paraeid="{fc97bcc9-c507-4304-a50a-f26c4f9a2c4d}{105}" paraid="1617031995" role="heading" xml:lang="EN-US">Start small </li> </ul> If you’re new to spread betting, begin with smaller stakes to understand how the market works.    Are you ready to spread bet? Log in to ThinkPortal to create your spread betting account today!

0 min readAll