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Candlestick patterns
Candlestick patterns are also another tool we can add to our belt to help us find bottoms. There are a handful or two of different types of candlestick patterns that can be used to help find a bottom, but one, in particular, that seems to be amongst the most commonly used is the hammer candle.
The Hammer candlestick pattern is something that chartist look for at the end of a downtrend to help signal a reversal. If we look at the chart displayed for The Green Organic Dutchman you will see a hammer candlestick pattern (just one candle) is highlighted after a downtrend then the uptrend appears to be commencing afterward. What exactly is a hammer? Well the candle itself looks like a hammer. The body of the candle is contained at the top with a longer lower wick. This daily price action can be thought of the bears continuing to run the prices down before the bulls show up and whack them with a hammer and drive the prices back up around the prior levels. What follows after a hammer is generally bullish price movements. Albeit, hammers like most things in life are not always 100% accurate and is best to combine with your other observations. If the hammer fails to signal the bulls a stop should be placed if prices drop below the lowest price of the hammer candle. Then next time you are wondering if a stock is done being attacked by bears, bring a hammer.