Hammer candlestick pattern

The Hammer candlestick pattern is a single candlestick pattern that is usually considered a bullish reversal pattern. Its open, high and close prices are relatively close to each other, so the candlestick has a very short body. The color of the body can vary, but it is often green for a bullish hammer. Green is considered to be a more reliable and strong signal of a bullish reversal.

The Hammer indicates that sellers were in control during the early part of the trading session, driving prices lower. However, at the end of the session, buyers regained control and pushed prices up to close near the open. The bullish reversal should be confirmed by the following candlestick. It should close above the closing price of the Hammer.

The pattern is similar to the Hanging Man pattern. The Hammer is a bullish reversal candlestick pattern occurring after a downtrend, featuring a small body near the top of the candlestick and a long bottom shadow. In contrast, the Hanging Man is a bearish reversal pattern that appears after an uptrend, with the same small body near the bottom of the candle and a long bottom shadow. Both patterns signal potential trend reversals but in opposite directions.

Hammer candle:

• occurs after downtrend
• short-sized green or red body (difference between open and close prices is minimal)
• long bottom shadow (at least twice longer that actual body of candlestick)
• very short to no upper shadow
• resembles hammer or letter “T”

A Stop Loss order can be placed below the low of the Hammer pattern, providing protection in case the downward pressure resumes.