Posted by: Neha Gupta
The hammer is a bullish reversal candlestick pattern. A hammer occurs when the price moves significantly lower after an open, but rebounds to close well above the low. I recommend you to have a look at my previous post on the 'hanging man', which is a bearish trend reversal pattern. The hammer and hanging man candlestick patterns have many similarities and if you refer to the previous blog post, it will help you compare these two and develop an wider understanding on the subject of 'Japanese Candlesticks'.
Now let's get back to the 'Hammer'. In a hammer candlestick pattern the lower shadow is twice the length of the body and it will have a very small or no upper shadow. Hammers generally form at the bottom of a trend.
1) The real body is at the bottom of the trading range.
2) It should have a long lower shadow at least twice the height of the real body.
3) It should have a very short or no upper shadow.
Hammer formation occurs at the bottom of the trend & is a bullish trend reversal candlestick pattern. When the market is in a downward trend & a hammer appears it expresses a trend reversal.