The candles of the pattern are ringed. An invented chart, drawn to show the shape. Not market data.
Also searched ashammer candle · bullish hammer · pin bar · hammer reversal
How to recognise a hammer
- A small body in the upper third of the candle.
- A lower wick at least twice the length of the body.
- Little or no upper wick.
- It follows a fall. The same shape after a rise has another name (the hanging man).
What it is taken to mean
It is taken as a sign that selling was rejected at the lower prices. Traders call it a possible turning point, and wait for the next candle to close higher before giving it weight.
What traders check next
- Whether the low of the hammer sits on a level that has held before.
- The next close. A close above the hammer’s body is the usual confirmation; a close below its low cancels the idea.
- How far away a stop beneath the wick would be, and whether that distance suits the size of the trade.
Where people go wrong
- Buying the hammer the moment it appears, with no confirmation.
- Calling any candle with a long lower wick a hammer, whatever came before it.
- Placing a stop inside the wick, where ordinary movement will reach it.
Questions people ask
- What is the difference between a hammer and a hanging man?
- The shape is the same. A hammer comes after a fall and a hanging man after a rise. The name records where it appeared.
- Is a hammer a reliable buy signal?
- No. It describes what buyers and sellers did during those candles. Studies of candlestick patterns find that, taken alone, they predict the next move only a little better than chance, if at all. It is one observation to weigh with others.
The words on this page
An explanation for study. It is not advice, a recommendation or a forecast, and a pattern or a situation described here says nothing certain about what a price will do next.