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What is a Hammer Candlestick?

Quick Answer: A hammer is a bullish reversal candlestick with a small body and long lower wick, appearing after downtrends. It signals sellers pushed price down but buyers regained control.

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What is a Hammer Candlestick?

A hammer is a one-candle reversal signal that forms after a decline. Sellers drive price sharply lower during the period, but buyers step in and push the close near the open, leaving a small real body with a long lower shadow.

Bullish Hammer

Found at bottom of downtrend - Reversal signal

Bullish Hammer PatternA candlestick diagram showing a bullish hammer pattern with a small body at the top, long lower shadow (2-3x body length), and minimal upper shadow. This pattern appears at the bottom of downtrends and signals potential reversal.Small/Noupper wickSmall bodyLong lowershadow (2-3xbody size)
Key Characteristics:
  • Long lower shadow (2-3x body length)
  • Small real body at upper end
  • Little or no upper shadow
  • Body color less important than shape

Signal Strength:

Strongest when found after extended downtrend with high volume

What This Pattern Shows:

Sellers pushed price down (long lower shadow), but buyers stepped in strongly, driving price back up near the open. The rejection of lower prices suggests buying pressure is building.

How to Spot a Hammer

  • Long lower wick: The shadow is typically at least twice the size of the candle body, showing a fast rejection.
  • Small body near the high: The open and close sit near the top of the candle range.
  • Minimal upper wick: A short upper shadow signals buyers held control into the close.
  • Trend context: The pattern matters only after a decline into support or oversold territory.

Example Trade

EUR/USD drops from 1.0900 to 1.0800 over four sessions. At a daily demand zone, price flushes to 1.0760 but snaps back to close at 1.0865, printing a hammer. A trader can plan a long above the candle high with a stop below the low and target the previous swing high.

Trading Checklist

  • Wait for the next candle to close above the hammer high before committing capital.
  • Pair the signal with RSI or volume divergence to filter weak setups.
  • Place stops below the hammer low and size positions for the wider risk.
  • Trail or scale out near nearby resistance.

Advanced Guidance

Build a repeatable, rules‑based process so decisions are consistent across sessions and instruments. Start from context (higher‑timeframe structure, positioning, macro tone), then define precise triggers and invalidation on execution charts. Track spread and depth so your order type matches conditions. Pre‑compute scenarios (breakout, fakeout, mean‑revert) and map actions for each to reduce hesitation.

Execution Framework

  • Plan entries at levels with confluence (structure, momentum, time‑of‑day).
  • Place stops beyond the logical invalidation, not arbitrary distances.
  • Target at least 2–3R; scale out methodically and trail remainder.
  • Avoid thin liquidity windows unless the setup explicitly requires it.
  • Record slippage and spreads; poor fills can erase edge.

Review Loop

  • Journal setups by session and pair to learn where they excel.
  • Tag trades by catalyst (news, trend continuation, range breakout).
  • Recalculate expectancy monthly; prune underperforming variants.

Risk Controls

Keep daily loss limits, reduce size after consecutive losses, and pause during regime shifts. Survival enables compounding; treat discipline and execution quality as part of your edge.

Related Terms

Candlestick ChartDojiSupport level

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