Japanese Candle Stick patterns give us a picture of market behavior. It gives us a hint whether the market will continue or reverse. They also depict the strength between the Bulls and Bears. One of such candle pattern is, Bullish Hammer.
A bullish hammer is formed in a downtrend giving a hint that, an established trend might take a u turn. It forms when the close price of a candle is higher than its opening, and the low of the candle is significantly lower than the opening price. i.e. difference between the opening and closing price is one third of the difference between closing and low.
Psychology of Hammer Candle Pattern:
The market has been in a downtrend, so there is an air of bearishness. The market opens and then sells off sharply. However, the sell-off diminishes after sometime, price makes a high above open and closes near the high for the day.
This leads to end to the prevailing bearish sentiment and most traders will be uneasy with any bearish positions they might have. If the close is above the open, causing a white body, it strengthens the Bullish sentiment. For confirmation one can wait for the next candle to open higher than previous close and by the end of the day for it to close even higher than its open.
The body of the Hammer can be Red (If close is less than Open) / Green (If Close is Higher then Open).