Hammer
The hammer is a bullish reversal pattern that forms at the bottom of downtrends. It has a small body at the top and a long lower wick (at least 2x the body), showing that sellers pushed prices down but buyers fought back.
Formation
- 1.Small real body at the upper end of the trading range
- 2.Long lower shadow (at least 2x the body length)
- 3.Little or no upper shadow
- 4.Can be green (bullish) or red (bearish), though green is stronger
Psychology
During the session, sellers pushed prices significantly lower. However, buyers stepped in aggressively and drove prices back up near the open. This rejection of lower prices signals potential exhaustion of selling pressure.
Trading Tips
- ✓Most effective after a sustained downtrend
- ✓Wait for bullish confirmation on next candle
- ✓Set stop-loss below the hammer's low
- ✓Longer lower wick indicates stronger buyer interest
Confirmation Signals
- →Next candle closes above the hammer's body
- →Increased volume on the hammer or confirmation candle
- →Located at support level or moving average
- →RSI showing oversold conditions
Hammer FAQs
Common questions about this pattern
A hammer is a bullish reversal candlestick with a small body at the top and a long lower wick. It appears after downtrends and signals that buyers rejected lower prices, potentially ending the selloff.
Wait for confirmation (next candle closing higher). Enter long with a stop below the hammer's low. Target previous resistance levels. The longer the lower wick, the more significant the pattern.
They look identical but context differs: a hammer appears after a downtrend (bullish), while a hanging man appears after an uptrend (bearish). The pattern's meaning depends entirely on where it forms.