Hammer candlestick pattern: What does it mean and how to trade it?

The hammer candlestick pattern is a reversal pattern found in technical analysis. It resembles a hammer and is considered a bullish reversal pattern. The pattern gives a trader an idea of the direction of price movement and its potential reversal.

hammer candlestick

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A hammer candlestick is a reversal pattern formed by a candle’s long upper and lower wick. Typically, the wick is long and the body of the candle short. Unlike doji, which are indecisive formations, hammer candlesticks signal a trader’s bullishness or bearishness position. For example, traders can buy low and sell high if the price moves lower after a hammer candlestick appears. If the price increases after the formation, traders can go short with the position. In this post, we will cover what hammer candlestick patterns are and how technical analysts use them in their analysis. But before getting into that, we will answer the following questions:

What Is a Hammer Candlestick?

A hammer candlestick is a technical analysis chart pattern used to identify oversold and overbought conditions in the market. The hammer candlestick pattern is characterized by its long body and double bottom. This means that the candlestick has a long body and a short tail. The long body of the candlestick indicates that the price rallied strongly and then declined, whereas the short bottom shows that the price subsequently reversed and moved up.

The double bottom portion of a hammer candlestick pattern shows a reversal in price direction from lower to higher, which indicates selling pressure. Traders can use the hammer candlestick pattern to enter or exit positions in the market. When a hammer candlestick pattern appears bearish, prices open lower and close lower than the previous day’s close. This pattern indicates selling pressure and can be used as an indicator to short stocks or commodities when prices are rallying strongly. If a hammer candlestick appears bullish, prices open higher and close higher than the previous day’s close. This pattern suggests buying pressure and can indicate long stocks or commodities when prices rally strongly.

hammer pattern

What Does a Hammer Candlestick Look Like?

A hammer candlestick pattern is a reversal of the trend characterized by an increase or decrease in the selling prices of stocks. The design is formed when the closing prices of stocks fall below the opening prices.

A bull market rally often follows the hammer candlestick pattern. To trade a hammer candlestick pattern, you must identify the triggering event and trade accordingly. You should also monitor technical Metatrader 4 indicators to confirm your trading decision. When analyzing hammer candlesticks, it’s essential to consider both short- and long-term context.

In a short-term context, a hammer candlestick is a reversal pattern that highlights a bear market reversal and indicates that bears control the market action.

In a long-term context, a hammer candlestick can indicate a bullish reversal signal and signal that bullish pressure has increased on the market. As with all technical analysis, it’s vital to understand the underlying factors that drive market movements before making any investment decisions.

Green Hammer

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They also advise making the most of natural resources such as water and sunlight and reducing waste. Green Hammer’s commitment to sustainability makes them an excellent choice for anyone looking to improve their home while helping the environment at the same time.

Is a Red Hammer Bullish?

A red hammer in technical analysis is a sign of bullish sentiment. A candlestick pattern occurs when the security’s opening price is lower than the closing price, resulting in a red body with a long lower wick. This indicates that buyers can push prices higher and that there is intense buying pressure in the market. This can be seen as an indication of future price increases.

Generally, this pattern indicates that investors expect positive news or developments for the security and are willing to buy into it despite short-term declines. This is why investors looking for potential investments can see a red hammer as a bullish signal.

Long Lower Shadow

A long lower shadow is a type of candlestick pattern that can be seen on a chart. This pattern usually consists of a long black or red body with a long lower shadow that extends far below the natural body. The long lower shadow shows that although the sellers could take control of the market during the day, the buyers eventually managed to push back and drive prices higher toward the close.

This indicates that bullish sentiment still exists in the market, despite any temporary selling pressure. As such, traders may consider this pattern to mean potential buying opportunities.

Bullish Hammer

The Bullish Hammer is a candlestick pattern that appears on charts and is used to identify potential reversals in bearish trends. It consists of a single candle with a long lower wick and a small body, either green or red. The length of the lower wick should be at least twice as long as the body.


This pattern indicates that although prices initially dropped significantly during the day, buyers stepped in near the bottom and pushed prices back close to their opening price. This suggests that the sellers are losing their power, and bulls may have taken control of the market. Therefore, traders often interpret this pattern as a bullish reversal signal, indicating that prices may rise in the future.

Bearish Hammer (Hanging Man)

The Bearish Hammer (Hanging Man) is a candlestick pattern that typically occurs during a downtrend. The design consists of a single candle with a long lower wick and a small body, usually red or black, at the top. It is believed to indicate that the current downtrend may be coming to an end and could turn into an uptrend. The critical elements of this pattern are the length of the lower wick and the small body at the top.


A long lower wick suggests that sellers were initially in control, but eventually, buyers stepped in to push prices higher, thus forming the pattern. Traders often watch for this pattern as it can allow them to enter into a trade with the potential for profits if prices reverse from their current trend. Therefore, it is essential to understand what this candlestick pattern looks like and how you can use it to your advantage when trading.

Inverted Hammer Candlestick

The inverted hammer candlestick is a reversal pattern that indicates an imminent sell-off in the underlying asset. This candlestick is a bullish reversal pattern and forms when the price of an asset declines from the upper wick of a candle to the lower wick of the same candle, reverses direction, and then closes higher.

The inverted hammer candlestick is a reversal pattern formed when the price of the underlying asset declines from the upper wick of a candle to the lower wick of the same candle, reverses direction, and then closes lower. This pattern can identify oversold and overbought positions in the market.

Traders must be aware that not all markets will exhibit this pattern, so they must be prepared to adjust their trading strategies accordingly. Remember that the inverted hammer candlestick pattern does not always signal a bearish reversal and can signal uncertainty or indecision in the market.

Inverted Hammer Bullish

The inverted hammer candlestick pattern is a bullish signal indicating that the market is expected to rally soon. The design is characterized by two candlesticks with inverted Hammer symbols, indicating that the price has fallen below the lower Bollinger band and is expected to rebound. This pattern suggests that the price of a security or commodity has dropped below its lower Bollinger band and is expected to rise again. In short, it indicates that the price of a security or item is likely to increase shortly. Traders can use the pattern to make profitable trades in the market.

bullish inverted hammer

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An inverted hammer candlestick pattern can be used as a technical analysis tool to predict the price movements of a particular security or commodity. It can be used to identify periods of low prices and expect a reversal in price movement. It is a powerful technical analysis tool for traders looking for short-term market predictions and effective ways of making money in the market.

Bearish Inverted Hammer (Shooting Star)

Bearish Inverted Hammer (Shooting Star) is a candlestick pattern usually seen at the top of an uptrend, indicating a potential trend reversal. The design consists of one long bearish candle with a small body and a long upper wick.

bearish inverted hammer

The long upper wick indicates an unsuccessful attempt by bulls to push prices higher and is typically followed by a downward price movement. This reversal pattern shows that the current uptrend may end, and bears are about to take control. Traders should look for additional signs of bearishness before entering short positions to confirm the potential trend reversal.

The psychology behind the inverted Hammer

The psychology behind the inverted hammer trading pattern is based on market reversal. The inverted Hammer indicates that a downtrend may end, with buyers beginning to show more interest in the stock. This bullish signal can also occur when market prices are already low, indicating that there could be a potential buying opportunity. Generally speaking, the longer the inverted Hammer appears on a chart, the stronger it’s signal and potential for success in reversing the trend.

Traders will typically wait until they see an increase in buying volume to confirm that buyers are taking advantage of the opportunity provided by the inverted hammer formation before buying shares. This type of analysis helps traders identify entry points into a new uptrend or provide confirmation that an existing uptrend is likely to continue.

Hammer Candlestick Pattern: Strategy Guide for Day Traders

The Hammer Candlestick Pattern is a popular trading strategy used by day traders. This strategy involves looking for a candlestick pattern with a long lower body and short upper body that appears at the end of a downtrend. The opening and closing prices should be close to each other, with the closing price being higher than the opening price. When this pattern is spotted, buyers have taken control, and the market may continue to increase in price.

To use this strategy successfully, traders must look for other bullish signals before entering a trade. They must also consider any potential risks associated with their careers, such as stop-loss levels or take-profit targets. By correctly utilizing the Hammer Candlestick Pattern, traders can capitalize on likely market trends and maximize their return on investment.

Hammer Candlestick Trading Strategies

Hammer candlestick trading strategies are a popular tool used by day traders and short-term traders. A hammer candlestick is a reversal pattern indicating a potential rally or bullish trend. It is typically formed when the open and close prices are near the day’s low, but the high price is significantly higher than the open and close prices.

Traders generally look for hammers when there is an established bearish trend in place, as it signals that prices could potentially start to rise. The longer, the lower wick of the candle, the more reliable the signal. Hammer candlestick trading strategies can be used to take advantage of reversals in price trends and help traders profit from these opportunities.

Strategy 1: Top-Bottom Strategy with Hammer

The Top-Bottom Strategy with Hammer is a powerful tool to help companies achieve their goals. It is based on a top-down approach, where the company sets its objectives and plans accordingly to reach those objectives. The strategy includes three phases: analysis, implementation, and evaluation. In the analysis phase, the company evaluates its current situation and identifies areas for improvement or growth.

In the implementation phase, the company takes action to meet the goals identified in the analysis phase. Finally, in the evaluation phase, the company assesses how well they have achieved its goals to adjust or refine its strategy as necessary. The Hammer approach allows companies to focus on both short-term and long-term objectives simultaneously, thus enabling them to make progress toward achieving their ultimate goals quickly and effectively. This strategy helps ensure that each step taken is intentional and leads closer to success.

Hammer vs. Doji: The Differences

Hammer vs. Doji compares two of the most popular chart patterns used in technical analysis. The main difference between them lies in their shapes – while the Hammer has a long lower wick and a small body, the Doji has an equal upper and lower wick with nobody.

hammer vs doji

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In addition, the Hammer usually indicates a bullish reversal and is formed when buyers take control of the market. In contrast, the Doji indicates either a bullish or bearish reversal and is typically formed when there’s indecision in the market. As such, traders need to pay close attention to these two chart patterns as they can provide invaluable insight into potential reversals in price trends.

The Pros and Cons of a Hammer Candlestick

A hammer candlestick is a great tool for both novice and experienced traders. On the one hand, it can help traders identify potential reversal points in the market and make informed decisions about when to enter or exit positions. On the other hand, certain disadvantages are associated with using a hammer candlestick, especially in volatile markets. For instance, false signals may be generated if the man moves too quickly or lackssn’t enough volume to support the hammer pattern.

Additionally, since this charting tool relies on spotting reversals, it won’t be as valuable in range-bound markets where prices aren’t changing significantly. Ultimately, while a hammer candlestick can be a useful tool for traders looking to capitalize on short-term price movements and reversals in the market, they should also be aware of its limitations before relying too heavily on it.

The Limitations of the Hammer Candlestick

The hammer candlestick pattern is a reversal of the bullish engulfing pattern. The hammer candlestick pattern is formed when the price of a security reaches a high and then falls back below the previous high, making it look like a hammer. This pattern can identify overbought and oversold conditions in a market. Traders may use the hammer candlestick pattern to enter long or short positions before the price of a security reaches its conclusion. The hammer candlestick pattern can also identify when a reversal is likely to occur. It indicates that price action may follow the Hammer’s descent and climb upwards.

The limitations of the hammer candlestick pattern are that it doesn’t always signal a reversal. They can be vulnerable to technical analysis errors, such as buying too late and selling too early.

Candlestick Patterns Professional Traders Use

The hammer candlestick pattern is a bullish signal that indicates an uptrend is continuing. The design is formed when the stock price reaches a high and falls below the previous day’s closing price.

The hammer candlestick pattern is considered a reversal signal and can be used to enter or exit long positions. Traders must verify their technical indicators, such as the stochastic oscillator and RSI, before jumping on the hammer bandwagon. This pattern can also indicate that the stock is overvalued and may be an excellent time to sell. Always check technical indicators first before making any trading decisions!

What is the difference between a hammer candlestick and a shooting star?

The hammer candlestick and the shooting star are two single candlestick patterns used in technical analysis. The hammer candlestick is a single-bar pattern that forms when the open, high, and close prices are roughly the same or nearly equivalent. It has a long lower wick that signifies intense buying pressure as the price is pushed back to near its opening level. On the other hand, a shooting star pattern is also a single-bar pattern but represents selling pressure.

It consists of a small natural body with an upper shadow at least twice as long as the natural body. This indicates that buyers initially drove the price higher, but sellers eventually overpowered them and drove prices down toward the close of the period. Both patterns can signal either bullish or bearish reversals depending on their position within an overall uptrend or downtrend.

Limitations of Using Hammer Candlesticks

Hammer candlesticks are known for being a useful technical analysis tool that can help identify oversold and overbought conditions in the market. However, they do come with limitations. For one, hammer candlesticks are typically used to identify oversold and overbought conditions in the price action of a given asset. This means that these candlestick patterns do not necessarily indicate reversal signals. Also, the hammer candlestick formation is only effective when used with technical indicators such as Bollinger bands and trendlines.

One of the advantages of hammer candlesticks is their simplicity and ease of understanding. On top of that, a trader can quickly identify reversal signals using them. Due to this, hammer candlesticks have become popular among traders for their ability to provide insightful analysis of price action.

Psychology of the Hammer Signal

The Hammer candlestick pattern is a bearish indicator that indicates selling pressure is increasing. When the pattern signals are formed, the market will likely experience a sell-off soon. Closing prices above the open price form this pattern for a long time and below the close price for a short period.

On the other hand, the bullish reversal pattern shows that buying pressure is increasing. Similar to the Hammer candlestick pattern, it consists of a long body and short upper wick. The long body signifies that the price is going up, while the short upper wick suggests a reversal in trend is imminent.

To trade the Hammer candlestick pattern, look for indicators that suggest a reversal in trend is imminent. These indicators include closing prices below the open price for a long time and above the close price for a short period. They can also be indicators such as bearish engulfing patterns or downtrend reversal signals. Remember that the Hammer candlestick pattern is not a guaranteed reversal signal and that other technical indicators must also favor a reversal for it to be valid.

Staying disciplined and taking profits quickly if confirmation appears is crucial when trading the hammer candlestick pattern.

Using Hammer Candles in Technical Analysis

Hammer Candles are a type of technical analysis used in trading to identify potential reversals of the current trend. The name is derived from the candle’s shape, which resembles a hammer with a long lower wick and a small body typically at the upper end of the trading range. Hammer candles indicate that traders are willing to buy despite previous selling pressure, suggesting that prices may be ready to reverse course and move higher.

Technical traders look for further confirmation before entering trades, such as solid volume or other technical indicators. Hammer candles can help identify areas where traders may wish to enter into new positions, but it is essential to use caution and confirmation before taking any action.

Frequently Asked Questions

Is Green Hammer bullish or bearish?

The green hammer candlestick pattern is usually associated with a bullish sentiment, indicating that the underlying asset’s price is likely to rise. The trade setup for a green hammer candlestick pattern is to buy the purchase when the candle has a short body and sell the asset when the candle has a long body.

How reliable is the hammer candlestick pattern?

The hammer candlestick pattern is a technical indicator that is used to identify a trend in the market. The design is formed when the stock prices of two candlesticks with different open and close fees are similar. The hammer candlestick pattern is considered bullish if the stock prices close above the available price and bearish if the prices close below the open price. Traders may use hammer candlestick patterns to enter and exit positions in the new low market.

Hammer Candle: an excellent or lousy Trading Pattern?

The Hammer Candle is a popular forex trading pattern that many traders use. It is characterized by a single-price next candle with a long lower wick and a small body near the top of the chart. This pattern indicates a possible reversal in trend, which can be suitable for traders looking to enter or exit positions. The key to successfully using this pattern is recognizing it quickly and acting on it before the market has already moved.

hammer and inside hammer

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On the other hand, if traders misread this pattern, they could potentially open themselves up to losses. Therefore, it’s essential to understand what the Hammer Candle means and how it works before diving into any trades involving this pattern. In conclusion, the Hammer Candle can be both a good and bad trading pattern depending on how one reads and interprets it.


A hammer candlestick pattern is a bullish reversal pattern, and traders should wait for confirmation of the reversal with a bullish candle or two before entering an extended position. On the other hand, bearish Hammer suggests a short-term downtrend, and traders must be cautious before entering a comprehensive post. Technical and chart analysis experts can use Hammer candlestick patterns as a trading tool to trade successfully. To learn more about hammer candlestick patterns, download our PDF brochure.

Author: Dominic Walsh

I am a highly regarded trader, author & coach with over 16 years of experience trading financial markets. Today I am recognized by many as a forex strategy developer. After starting blogging in 2014, I became one of the world's most widely followed forex trading coaches, with a monthly readership of more than 40,000 traders! Make sure to follow me on social media: Instagram | Facebook | Linkedin | Youtube| Twitter | Pinterest | Medium | Quora | Reddit | Telegram Channel

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