Blockchain and Cryptocurrency Beginner - The Psychology Behind the Formation of Hammer and Morning Star Candlestick Patterns

The Hammer Candlestick Pattern

The Hammer candlestick pattern is simply a candlestick that forms like a hammer shape. The hammer candlestick that occurs at the bottom of a downtrend can be an indication that the market could be heading for a reversal. The hammer that occurs in an existing uptrend, it indicates the strength of the buyers and that the buyers are still in control of the market. The bullish hammer is the most common and it has a small body with a long wick which indicated that the market rejected lower prices. Aside from the regular bullish hammer, another hammer type is the inverted hammer which is simply the inverted or upside-down version of the bullish hammer.

The psychology behind the hammer candlestick pattern is that the sellers where at some point in control, pushing the price down, however, the buyers came in and reversed the price movement to the upside and closing very close to the high of that candlestick. The buyers eventually took control after overcoming the selling pressure and closed the price very close to the high.

The Morning Star Candlestick Pattern

The morning and evening star candlestick pattern are simply candlestick patterns that forms with three candlesticks. The morning star candlestick pattern forms with three candlesticks that forms at the bottom of a downtrend. The morning star shows that the downward momentum is slowing down before there is a bullish move that indicates there is a possible reversal to an uptrend. The morning star comprises of a Doji or a small body red/green candlestick in-between a large red/bearish candlestick and large green/bullish candlestick.

The psychology behind the morning star candlestick pattern is that on the red or bearish candle where the sellers are in control, the selling pressure pushes the price all the way down and closing near the lows. The next candlestick that follows is a Doji candlestick which shows an indecision in the market and slowdown in the downward momentum, because the buyers and sellers are in equilibrium, causing the opening price and close price are at the same level. The next candlestick that follows is a green or bullish candlestick where the buyers have now taken control, the buying pressure pushes the price all the way up and closing near the highs.