The Hammer is a bullish reversal candlestick pattern that indicates a potential reversal at the end of a downtrend. The pattern gets its name because it looks somewhat like a hammer with a long handle.

The bearish version of the Hammer candlestick pattern is the Hanging Man pattern.

Here's a breakdown of the Hammer pattern:

  1. The pattern consists of a single candlestick with a small body at the upper end, little or no upper shadow (or wick), and a long lower shadow. The long lower shadow should be at least twice the length of the body, suggesting that sellers pushed the price significantly lower during the period, but buyers were able to drive the price back up to near the opening price.

  2. The color of the body is not as critical in this pattern. A green or white body (indicating that the closing price was higher than the opening price) is considered slightly more bullish, but a red or black body can also produce a valid Hammer pattern.

  3. The Hammer pattern appears during a downtrend. The long lower shadow shows that selling pressure was present, but the fact that buyers were able to push the price back up to near the opening price shows that buying pressure is starting to increase.

  4. Confirmation of the pattern's bullish signal comes if the next candlestick after the Hammer is bullish and closes above the Hammer's close. This would suggest that the buyers have taken control and that the downtrend may be about to reverse.

As with all candlestick patterns, the Hammer should be used in conjunction with other forms of technical analysis for confirmation. Traders often look for other signs of a potential reversal, such as an increase in buying volume or bullish signals from technical indicators.

Last updated