Examining profitability of Hammer candlestick pattern in Indian Stock Market

This paper focuses exclusively on a single candlestick reversal pattern 'Hammer‘. Its profitability is investigated by using daily data of Nifty 50 component stocks over the period from August 1, 1998 till December 31, 2017. Seven different trading strategies based on hammer are tested using bootstrapped skewness adjusted t-test and binomial test. The success of five trading strategies shows that hammer pattern has significant predictive power in Indian stock market. The study recommends that one should trade hammers of significantly larger size, keep the stop loss at the low of the hammer and exit the long positions within five trading days. The use of stop loss rule is advocated as it increases the profitability.