Hammer candlestick
Family VI · Charts & indicators
Not to be confused with candlestick, candlestick pattern, engulfing candlestick pattern.
Hammer candlestick is a one-bar formation defined by the relationship between its body and its shadows, not by the colour of the body. It appears at the end of a decline, where the session opens, trades sharply lower, then closes back near the top of its range. The long lower shadow records the rejected lower prices; the small body records where the session finished relative to where it opened.
Shape and identification
A hammer has three measurable parts. The real body, the distance between open and close, sits in the upper third of the bar's total range. The lower shadow, or tail, extends downward and is conventionally required to be at least twice the height of the body. The upper shadow is absent or very short.
Body colour is secondary. A green or white body means the close finished above the open; a red or black body means the close finished below it. Both are accepted as hammers, because the defining feature is the recovery from the low, not the direction of the body.
Context is part of the definition. The same shape in the middle of a range or after a sustained advance is not a hammer; the pattern is only read as such after a decline. The inverted version, with the long shadow above the body, is a separate formation.
Worked example
The lower shadow is nine times the body height, well above the two-to-one threshold, and the body sits in the top portion of the 4.40-point range. The bar qualifies as a hammer; whether it carries any signal depends on the preceding trend and on the next session's price action.
Interpretation and limits
The pattern is read as a rejection of lower prices: sellers drove the market down during the session, but buyers absorbed the supply and lifted the close back toward the high. In isolation it is a single observation, not a forecast. Traders commonly require confirmation, such as a higher close on the following bar, before treating it as meaningful.
Reliability varies with market, timeframe and liquidity. On thinly traded instruments or very short timeframes, long shadows occur frequently and carry less information. A hammer that forms at a round number, a prior support level or a high-volume price area is generally given more weight than one that appears in open space.
Position sizing and stop placement around the pattern are decisions that differ by trader and by market; the pattern itself specifies only the shape of the bar, not a target or a risk level.
Often confused with
- candlestick
- A candlestick is the general chart element that plots open, high, low and close for one period, whereas a hammer is one specific shape that element can take; the visible sign is that any bar is a candlestick, but only a bar with a small top body and a long lower shadow after a decline is a hammer.
- candlestick pattern
- A candlestick pattern is any named formation built from one or more candles, so the hammer is a member of that broader class rather than a synonym for it; the visible sign is that a pattern may span several bars, while a hammer is always a single bar.
- engulfing candlestick pattern
- An engulfing candlestick pattern is a two-bar formation in which the second real body completely covers the first, whereas a hammer is a one-bar formation defined by its shadows; the visible sign is the presence of two bodies, with the later one wrapping the earlier one.
See also
- forex technical analysis indicators
- price action
- fundamental analysis
- support and resistance
- technical analysis
- fibonacci