The chart below shows the AUD/USD 4H Chart, painted with the Ichimoku MT4 Indicator and candlestick patterns. We shade the two “Hammer” patterns in green.
Chart from Bloomberg
What is a Hammer pattern? It is a Bullish reversal when found in a downtrend. The candlestick’s lower shadow should be at least twice the length of the real body, which should be at the top of candle. This pattern indicates that the market is “hammering out” a bottom. The lower shadow indicates downside rejection of a price level.
Having established the bullish signals from the Candlestick Hammer pattern, we combine this with Ichimoku analysis for confirmation. In the far left of the chart, we see the Hammer coinciding with a kumo break failure. The bottom of the purple shaded kumo cloud is proving to be a solid support and coupled with a bullish Hammer, we see prices shooting up around 25 July 2013.
On the right side, the green Tenkan Sen line has performed a “weak strength” downward Kijun Sen cross, with prices dipping inside the Kumo cloud but failing to break in. Again on 15th August, the Kumo cloud serves as a determined support level and coupled with a bullish hammer, we see 4 consecutive bullish candles thereafter.
While the Ichimoku forex indicator can provide trend and directional forecasts, price action candlestick signals can help to pin point precise trade entries.