A Bullish trend reversal pattern in Candlesticks - The Hammer

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.

The hammer candlestick pattern can be recognized by these criteria.

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.

The color of the candle can be green or red, but many believe that a trend reversal is more promising if the candle is Green in color i.e. it is of a positive close. Despite all the expert opinions I suggest you to observe Hammer formations of different colors as I have seen that, many a times Red hammers bring reversals too and lead into a perfect upward move. For an example you can refer to the chart below.

When you see a hammer it does not mean that that you should go ahead and place a buy order. One will need a more bullish confirmation to do so.  A appearance of a single hammer candle does not promise an upward trend in the market, in many cases I would look for another candle with which the market confirms the trend.