The Hammer candlestick is one of the most reliable bullish reversal patterns in technical analysis. When it appears after a downtrend, it signals that sellers are losing control and buyers are stepping in. Learning to identify and trade the Hammer can help you catch the beginning of powerful upward moves.
What is a Hammer Candlestick?
A Hammer is a single candlestick pattern that forms at the bottom of a downtrend. It has a small body at the top of the candle with a long lower shadow (at least twice the length of the body) and little to no upper shadow. The pattern gets its name because it looks like a hammer with a handle pointing down.
Visual Description: Picture a small square or rectangle (the body) at the top, with a long vertical line extending downward (the lower shadow). The body can be either green (bullish) or red (bearish), though green Hammers are considered slightly more bullish.
Hammer Formation Criteria
For a candlestick to qualify as a valid Hammer, it must meet these specific criteria:
- Location: Must appear after a downtrend or significant decline
- Lower shadow: At least 2x the length of the body (some traders require 2.5x or 3x)
- Upper shadow: Very small or nonexistent
- Body position: Located in the upper portion of the trading range
- Body size: Relatively small compared to the lower shadow
Psychology Behind the Hammer
Understanding why the Hammer works helps you trade it more effectively. Here is what happens during a Hammer formation:
- Opening: The session opens and selling continues the downtrend
- Decline: Sellers push price significantly lower during the session
- Reversal: Buyers step in aggressively, pushing price back up
- Close: Price closes near the open, erasing most or all of the day's losses
The long lower shadow represents the distance sellers pushed price down before buyers took control. This rejection of lower prices is what makes the Hammer bullish.
Types of Hammer Patterns
Bullish Hammer (Green Body)
When the close is above the open, creating a green (or white) body. This is considered more bullish because buyers not only rejected lower prices but pushed price above the opening level.
Bearish Hammer (Red Body)
When the close is below the open, creating a red (or black) body. Still bullish at the bottom of downtrends, but slightly less strong than the green Hammer.
Hammer vs. Hanging Man
The Hanging Man looks identical to the Hammer but appears at the top of an uptrend. Context is everything:
- Same pattern after downtrend = Hammer (bullish)
- Same pattern after uptrend = Hanging Man (bearish)
How to Trade the Hammer Pattern
Entry Strategy
Never enter a trade based on the Hammer alone. Wait for confirmation on the next candle.
Trading Example: Standard Hammer Trade
Stock XYZ has fallen from $80 to $60 over two weeks. A Hammer forms at $60 with a low of $57.
The next day opens at $61 and closes at $63 (above the Hammer's high).
Entry: Buy at $63.50 (above confirmation candle's close)
Stop loss: $56.50 (below the Hammer's low)
Target: $70 (previous support turned resistance)
Stop Loss Placement
Place your stop loss below the low of the Hammer. If price breaks below this level, the pattern has failed and the downtrend may continue.
- Conservative: 1-2% below the Hammer's low
- Aggressive: Just below the Hammer's low
Profit Targets
Consider these methods for setting profit targets:
- Previous support/resistance levels
- Fibonacci retracement levels of the prior downtrend
- Risk/reward ratio of at least 2:1
- Trailing stop as the uptrend develops
Increasing Hammer Reliability
These factors make a Hammer more likely to result in a successful reversal:
Volume Confirmation
- Higher volume on the Hammer day increases reliability
- Volume spike shows significant buying interest
- Low volume Hammers are less trustworthy
Support Levels
- Hammer at key support level is more significant
- Look for previous swing lows, moving averages, or trendlines
- Round numbers ($50, $100) often act as support
Oversold Conditions
- RSI below 30 when Hammer forms increases reliability
- Price far below moving averages suggests exhausted selling
- Multiple oversold indicators align = stronger signal
High-Probability Hammer Setup
Stock ABC falls from $150 to $120 (20% decline). At $120:
Price hits the 200-day moving average
RSI reaches 28 (oversold)
A Hammer forms with 3x the lower shadow
Volume is 50% above average
This confluence of factors creates a high-probability reversal setup.
Common Hammer Trading Mistakes
- Trading without confirmation: Entering on the Hammer day before the pattern is confirmed
- Ignoring the trend: Hammers in sideways markets are less reliable
- Stop too tight: Placing stops just below the body instead of below the shadow
- Wrong timeframe: Hammers on 1-minute charts are far less reliable than daily charts
- Ignoring context: Not checking if the Hammer is at a meaningful support level
Hammer Pattern Statistics
Historical analysis shows these approximate success rates:
- Hammer with confirmation: 60-65% success rate
- Hammer at support with volume: 65-70% success rate
- Hammer without confirmation: 40-45% success rate
These rates vary by market conditions and timeframe. Always use proper risk management regardless of pattern statistics.
Hammer vs. Similar Patterns
Hammer vs. Inverted Hammer
The Inverted Hammer has the long shadow pointing up instead of down. Both are bullish at downtrend bottoms, but the Hammer is generally considered more reliable.
Hammer vs. Dragonfly Doji
The Dragonfly Doji is similar but has virtually no body (open equals close). The Hammer has a small but visible body.
Track Your Hammer Pattern Trades
Pro Trader Dashboard automatically identifies candlestick patterns and tracks your success rate with each one. See which patterns work best for you.
Summary
The Hammer candlestick is a powerful bullish reversal signal that appears at the bottom of downtrends. Its long lower shadow shows that sellers were initially in control but buyers stepped in to reject lower prices. For best results, wait for confirmation on the following candle, place stops below the Hammer's low, and look for additional confluence like support levels, oversold indicators, and volume confirmation. The Hammer is most reliable on daily and higher timeframes at significant support levels.
Learn more: Inverted Hammer pattern and Hanging Man candlestick.