Hammer and inverted Hammer

The Hammer and inverted Hammer indicator automatically identifies key candlestick patterns to help traders spot potential market reversals through customizable tail and range parameters.

Usage

The Usage section focuses on identifying two primary candlestick formations: the Hammer and the Inverted Hammer. Traders can use these signals to anticipate potential bullish or bearish trend shifts based on price action at local extremes.

• Hammer Pattern: Identified when a candle displays a significant lower wick, signaling that buyers have stepped in after a period of selling pressure. This is typically used to identify potential bullish reversals.
• Inverted Hammer Pattern: Identified when a candle shows a significant upper wick, indicating that sellers have rejected higher prices. This is often used to identify potential bearish reversals.

The script allows for filtering these patterns based on their position relative to recent price history, ensuring that signals are only generated when a candle extends beyond a specified lookback range.

Details

The script evaluates candlestick geometry by calculating the ratio of the tail length to the total candle range. To increase signal reliability, the indicator includes logic to check for consecutive candles meeting the tail requirements. Furthermore, it incorporates a trend-context filter by checking if the candle's low or high penetrates a "lowest low" or "highest high" of a user-defined lookback period by a specific percentage. This ensures the patterns are appearing at significant swing points rather than in the middle of a range.

Settings

Hammer Settings

• Minimum Lower Tail Length (%): Defines the minimum percentage of the total candle size that must be represented by the lower wick.
• Number of Consecutive Candles: Sets how many consecutive candles must meet the lower tail criteria to trigger a signal.
• Percentage of Candle Below Previous Low: The minimum percentage of the candle's range that must be below the lowest low of the lookback period.
• Number of Previous Candles for Lowest Low: The lookback window used to determine the recent support level.

Inverted Hammer Settings

• Minimum Upper Tail Length (%): Defines the minimum percentage of the total candle size that must be represented by the upper wick.
• Number of Consecutive Candles for Upper Tails: Sets how many consecutive candles must meet the upper tail criteria to trigger a signal.
• Percentage of Candle Above Previous High: The minimum percentage of the candle's range that must be above the highest high of the lookback period.
• Number of Previous Candles for Highest High: The lookback window used to determine the recent resistance level.

FAQ

How do I use the alerts?

You can set up alerts for the Hammer, Inverted Hammer, or both patterns simultaneously. This allows you to monitor multiple timeframes without needing to watch the charts constantly.

Can I adjust the sensitivity of the detection?

Yes, by increasing the "Minimum Tail Length (%)" or the "Percentage of Candle Below/Above" settings, you can filter for more extreme (and potentially more significant) price rejections.

How do I access this tool?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.