Hammer Pattern Indicator – Strategy Explanation

This Hammer Pattern Indicator is a candlestick-based reversal signal that identifies bullish hammer patterns in a downtrend. It is designed to detect potential trend reversals and highlight buying opportunities.

How It Works

1️⃣ Detects Downtrend

• The candle’s closing price must be lower than the close 3 bars ago, indicating a potential downtrend.

2️⃣ Validates Hammer Candlestick Structure

• Small Body: The body of the candle is relatively small (≤ 30% of total range).
• Long Lower Shadow: The lower wick is at least 2 times the body size (shows strong rejection of lower prices).
• Short Upper Shadow: The upper wick is ≤ 30% of the body size (indicating little resistance at the top).

3️⃣ Plots a Buy Signal

• If all conditions are met, a red dot (or a chosen color) appears slightly below the low of the hammer candle as a visual confirmation of a potential reversal.

Key Features

✅ Filters weak signals by ensuring a prior downtrend.
✅ Customizable parameters for body size, shadow length, and colors.
✅ Simple yet effective candlestick pattern for swing traders and price action traders.

📌 Best Use: Confirm the hammer pattern with additional indicators (e.g., volume, support levels) for stronger signals! 🚀