The Hammer Candlestick

The Hammer Candlestick

analysis Candlestick or Hanging Man pattern occurs after an extremely long bullish trend in the market. The pattern indicates a bearish market trend reversal, with a sudden drop in the currency pair prices. The highest point of the bearish candlestick pattern indicates an overbought level in the market with buying pressures exceeding the selling prices.

hammer candlestick pattern
downward price

Hammer candlesticks are a great way to determine the direction of a trend. They can also be used to predict future market movements by looking at how they form and their shape and body. It is characterized by a long lower shadow and a small body.

Inverted hammer candlestick pattern

As you strategize on a potential exit point, you may want to look for other resistance levels such as nearby swing lows. As with any trade, it is advisable to use stops to protect your position in case the hammer signal does not play out in the way that you expect. The level at which you set your stop will depend on your confidence in the trade and your risk tolerance. The Hammer candlestick pattern is very common on price charts. When using the Hammer pattern for trend reversal trading, it is very important to adequate risk management strategies, such as setting stop-loss orders and limiting the size of each trade.

The bearish inverted hammer is called a shooting star candlestick. It looks just like a regular inverted hammer, but it indicates a potential bearish reversal rather than a bullish one. In other words, shooting stars candlesticks are like inverted hammers that occur after an uptrend. They are formed when the opening price is above the closing price, and the wick suggests that the upward market movement might be coming to an end. An important part of price action trading is analyzing the chart to find trade setups.

The hammer is a single line candle that appears in a downward price trend and it signals a reversal 60% of the time. Once the candlestick appears and price breaks out, the move is unexciting, ranking 65 out of 103 candles where 1 is best. But the hammer appears frequently, so if you blow one trade you can try again to compound the loss. I’m not sure if we are looking at the same candle, are you referring to the one with a very small upper shadow?

This candlestick pattern is bullish because not only are sellers unable to push the price lower, but the buyers push the price back up aggressively and close the candle well-off lows. This type of price action is typically a bullish sign and tells us that buyers are in control. Hammer candles serve as effective indicators when they appear after a minimum of three declining candles.


The hammer candlestick is also considered more reliable when it forms at a price level that’s been shown as an area of technical support by previous price movement. In contrast to the upper shadow, the lower shadow of the candlestick is very long. In order for a candlestick formation to be recognized as a hammer pattern, the lower shadow should be at least twice as long as the body of the candlestick. Under these circumstances, the signal you’re keeping an eye out for is a hammer-shaped candlestick with a lower shadow that is at least twice the size of the real body. The closing price may be slightly above or below the opening price, although the close should be near the open, meaning that the candlestick’s real body remains small. There is no assurance that the price will continue to move to the upside following the confirmation candle.

Traders view a hammer candlestick pattern to be an extremely reliable indicator in candlestick charting, especially when it appears after a prolonged downtrend. Confirmation of a hammer signal occurs when subsequent price action corroborates the expectation of a trend reversal. In other words, the candlestick following the hammer signal should confirm the upward price move. Traders who are hoping to profit from a hammer signal often buy during the formation of this upward confirmation candle. The Hammer candlestick pattern is a strong market trend reversal indicator.

How to Interpret Distribution Days

Demo accounts are a vital tool for traders of all experience levels, as they give you a sandbox environment to trial strategies before you put them to the test with real funds. To trade hammer patterns, you’ll look to take advantage of the new uptrend that should form shortly after the candlestick appears. In the example above, the price reached a new low and then reversed into a higher level. The area that connects the lows is referred to as the zone of support. It acts as a rubberstamp to the reversal signal yielded by the hammer candlestick.

  • The prolonged lower wick signifies the rejection of the lower prices by the market.
  • The formation of this pattern suggests that buyers have gained control and are driving the price up, while the selling pressure has diminished.
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  • Exits need to be based on other types of candlestick patterns or analysis.

The hammer candlestick chart patterns tend to work better when combined with other trading strategies, such as moving averages, trendlines, RSI, MACD, and Fibonacci. It is considered a bullish reversal pattern due to its key characteristics, such as a small real body, a long lower shadow, and a minimal or absent upper shadow. These features suggest that buyers have taken control and are pushing the price higher, while the selling pressure has diminished.

Lawrence Pines is a Princeton University graduate with more than 25 years of experience as an equity and foreign exchange options for multinational banks and proprietary trading groups. Mr. Pines has traded on the NYSE, CBOE and Pacific Stock Exchange. In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives.

Hammer Candlestick: Identification Guidelines

If the is green, it is considered a stronger formation than a red hammer because the bulls were able to reject the bears completely. Also, the bulls were able to push up the price past the opening price. My book,Encyclopedia of Candlestick Charts, pictured on the left, takes an in-depth look at candlesticks, including performance statistics. The Gravestone Doji is similar to an inverted hammer or a shooting star. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools.


This candlestick looks like a hammer, with a long lower shadow or wick, a small or non-existent upper wick, and a small body. The body of the candlestick represents the difference between the opening and closing price, while the wicks represent the high and low of the period. We put together an easy infographic cheat sheet of the top candlestick patterns to help train your eye. While a hammer candlestick pattern signals a bullish reversal, a shooting star pattern indicates a bearish price trend.

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If you project the height of the candle in the direction of the breakout , price meets the target 88% of the time, which is very good. The best average move occurs after a downward breakout in a bear market. Price drops an average of 4.12% after a hammer, placing the rank at 48 where 1 is best.

The formation of this pattern suggests that buyers have gained control and are driving the price up, while the selling pressure has diminished. Both the inverted hammer and the hammer signal a bullish reversal. They serve as classic price reversal patterns at the bottom. Their appearance on the price chart signals the beginning of a new bullish trend. They also warn traders that an asset has reached the bottom.

It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. However, the sellers were only able to maintain equilibrium. By the end of the period, the market was back where it started, a key sign that selling momentum is waning and buyers are ready to step in.

At this point, you might also want to check that the exit points you’ve identified align with your chosen risk-reward ratio. Thus, the bearish advance downward was rejected by the bulls. In contrast, when the open and high are the same, the red Hammer formation is considered less bullish, but still bullish. Trade white bodied hammers for the best performance — page 353. Hammer candles that appear within a third of the yearly low perform best — page 351.

It is actually almost the same chart, it’s just that this sequence occurred a bit later. The close can be above or below the opening price, although the close should be near the open for the real body of the candlestick to remain small. Don’t look at an individual candlestick pattern to tell you the direction of the trend. The long lower shadow of the Hammer candle represents the market testing lower prices but ultimately failing to sustain them.

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