Hammer Pattern - Trade - EhsanTrading

What Is a Hammer Candlestick?

A hammer is a price pattern in candlestick charting that occurs when a security trades significantly lower than its opening, but rallies within the period to close near the opening price. This pattern forms a hammer-shaped candlestick, in which the lower shadow is at least twice the size of the real body. The body of the candlestick represents the difference between the opening and closing prices, while the shadow shows the high and low prices for the period.
Key Takeaways

Hammer candlesticks typically occur after a price decline. They have a small real body and a long lower shadow.
The hammer candlestick occurs when sellers enter the market during a price decline. By the time of market close, buyers absorb selling pressure and push the market price near the opening price.
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.
The lower shadow should be at least two times the height of the real body.
Hammer candlesticks indicate a potential price reversal to the upside. The price must start moving up following the hammer; this is called confirmation.