Hammer
Quick Definition
A bullish reversal candlestick pattern with a small body near the top and a long lower shadow, appearing at the bottom of downtrends.
Key Takeaways
- A hammer has a small body at the top with a lower shadow at least 2× the body length, appearing after downtrends.
- It shows that sellers drove prices lower during the session, but buyers regained control by the close.
- Confirmation from the next session's bullish candle is essential before acting on the signal.
What Is Hammer?
The Hammer is a single-candlestick reversal pattern that forms at the bottom of a downtrend, signaling potential bullish reversal. It is characterized by a small real body (open and close are near each other) at the upper end of the trading range and a long lower shadow (wick) that is at least twice the length of the real body. The color of the body (green/white or red/black) is less important than the shape, though a green body is considered slightly more bullish. The psychology behind the hammer is revealing: during the session, sellers pushed the price significantly lower (creating the long lower shadow), but buyers stepped in and drove the price back up near the open, demonstrating strong buying pressure and potential exhaustion of selling momentum. For the hammer to be valid, it should appear after a meaningful decline. Confirmation comes from a strong bullish candle on the following session. The stop-loss is typically placed below the hammer's low, providing a clear risk management level.
Hammer Example
- 1After a three-week decline, the stock printed a textbook hammer with a lower shadow three times the body length — the next day's bullish gap-up confirmed the reversal, and the stock rallied 18% over the following month.
- 2A hammer formed at the $200 support level on high volume, indicating strong buyer demand at that price — traders entered long positions with stops just below the hammer's low at $195.
Related Terms
Doji
A candlestick pattern where the opening and closing prices are virtually equal, creating a cross-like shape that signals market indecision and a potential trend reversal.
Inverted Hammer
A bullish reversal candlestick pattern with a small body near the bottom and a long upper shadow, appearing at the end of downtrends.
Hanging Man
A bearish reversal candlestick pattern identical in shape to a hammer but appearing at the top of uptrends, warning of potential selling pressure.
Engulfing Pattern
A two-candle reversal pattern where the second candle's body completely engulfs the first, signaling a shift in momentum — bullish when it follows a downtrend, bearish after an uptrend.
Moving Average
A calculation that averages a security's price over a specific number of periods, smoothing price data to identify trends.
Relative Strength Index (RSI)
A momentum indicator measuring the speed and magnitude of price changes on a 0-100 scale, used to identify overbought or oversold conditions.
Expand Your Financial Vocabulary
Explore 130+ financial terms with definitions, examples, and formulas
Browse Technical Analysis Terms