What is a Hammer?

• The hammer is a reversal candlestick pattern formed on bottoms.
• A hammer occurs in a candlestick when an instrument trades significantly lower than its opening, but rallies later in the day either above or near its opening price.
• It is one of the strongest candlestick patterns and signals a potential increase on the market after the market attempts to determine a bottom.
• The hammer can be found on all asset classes and all time intervals.
• Hammers are most accurate when preceded by three or more consecutive declining candles.

Some of the features that distinguish the hammer candlestick pattern from other patterns include:

• The hammer has a small upper body and a long bottom shadow.
• The shadow should be at least twice as long as the body.
• The colour of the body does not make a difference.

A hammer occurs after an instrument has been declining in a suggestion that the market is attempting to determine a bottom or level of support. The hammer signal doesn’t mean that the buyers have regained control of the instrument, but simply indicates that potential bullish sentiment could be strengthening.

After a hammer candlestick pattern has been formed, the market indicates its will to reverse its decrease movement and signals a high probability that it will attempt to gain in value. It is important to remember that all candlestick patterns are more accurate as signals if they are formed on significant support and resistance levels.

The confirmation of a hammer candle can be made when the very next proceeding candle closes with a higher low than the hammer candle. Hammers can be measured on any timeframe, but the larger the timeframe the more thorough the hammer candlestick will be due to more participants involved.