Forex Trading

Hammer Candlestick Pattern


The candlestick is a pattern that works well with various financial markets. It is one of the most popular candlestick patterns traders use to gauge the probability of outcomes when looking at price movement. There is no perfect answer to this question cause every trader uses these patterns as per their psychological and technical knowledge. But for me, Engulfing, Morning Star, and Evening Star Patterns, and all hammer candlestick patterns, are the most powerful candlestick patterns. It means the ongoing downtrend is about to change from down to up.

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For more information on reversal patterns, read our article on Trading the Bullish Hammer Candle. Most traders will wait until the day after a Hammer pattern forms to see if a rally continues or if there are other indications like a break of a downward trendline. When the high and the close are the same, a bullish Hammer candlestick is formed. An abandoned baby, also called an island reversal, is a significant pattern suggesting a major reversal in the prior directional movement. An abandoned baby top forms after an up move, while an abandoned baby bottom forms after a downtrend. As usual, the hammer should represent a reversal signal – in this case, the beginning of a new uptrend.

Additionally, it can be applied to any currency pair or financial instrument, so long as it is fairly liquid. If you have an open short position that’s profiting from a downtrend and you spot a hammer, it might be time to exit before an upward move eats into your profits. Most traders prefer to trade using technical indicators like RSI and MACD. The color of a Hammer candlestick may be either bullish or bearish. A very close and similar pattern to hammer candle stick is the Dragonfly Doji pattern.


If the momentum is strong with a long-shadowed hammer and big confirmation candle, the price may become too high from its stop loss level, which is risky. A hammer candlestick chart usually forms a long lower shadow because of demand and support test by the market. Financial technical analysis is a study that takes an ample amount of education and experience to master.

Hammer Candlestick Pattern: Complete Guide

Mostly bearish engulfing candlestick patterns don’t have wicks, but sometimes a little wick is okay. The White Marubozu candle is a healthy bullish candlestick with no upper or lower wicks. This candle represents increasing buying pressure in the market, and bears are getting weaker, so they can’t even be able to let the price low anymore. The on-neck pattern occurs in a downtrend and shows that bulls are getting powerful enough and can change the trend from down to up. The first candle in this pattern indicates a continuation of an ongoing downtrend.

It shows that the price is ready to decline after a strong uptrend as the candlestick has a long lower shadow that depicts the force of bears. When the market is trending lower it can be especially difficult to buck that trend and take an early long position. Nevertheless, when traded with prudence and strict risk control measures, the hammer pattern does offer a solid contrarian trade set up with a viable edge. The entry order is noted on the price chart and should be placed immediately following the confirmation of our conditions above.

Despite being inverted, it’s still a bullish reversal pattern – indicating the end of a downtrend and the beginning of a possible new bull move. An inverted hammer pattern happens when the candlestick has a small body and a long upper shadow. The Hammer is very similar to the Hanging Man candlestick pattern. Both have similar shapes with a small body, tiny or absent upper wick, and a long lower wick. The only difference between them is the nature of trends in which they appear.

He “Hammer” is a popular chart pattern used in technical analysis to help identify potential trend reversals in financial markets. The Hammer is a bullish reversal pattern that is formed at the bottom of a downtrend. The Hammer chart pattern received its name because these formations have a club-shaped upper candle region and a long lower wick . In most cases, the lower wick will be twice as long as the candle body and the closing price level determines whether its trading signals will be bullish or bearish.

This pattern has a neckline, causing two candles to close at the same levels and form a horizontal neckline. If the market is in an uptrend, it’s likely the price will move higher (regardless of whether there’s a Hammer, or not). A big mistake traders make is thinking the trend will reverse when a Hammer is formed. In the following chart, the S&P 500 made two inverted hammers. The first was on 26 January and the second was on 08 March 2022. Check out the economic calendar, and blend your analysis with fundamentals to see if they support the inverted hammer.

As such, to use hammer candlesticks in trading, you need to consider their position in relation to previous and next candles. The reversal pattern will either be discarded or confirmed depending on the context. A hammer candlestick is formed when a candle shows a small body along with a long lower wick. The wick should have at least twice the size of the candle body. The long lower shadow indicates that sellers pushed the price down before buyers pushed it back up above the open price.

Support and Resistance Levels

The formation of the pattern signals the start of an uptrend as well. In simple terms, during a downtrend, with bears having absolute control, a stock usually opens lower compared to the previous day’s close, and again closes lower. On the day the hammer pattern is formed, maintaining the downtrend, the stock makes a new low. In the example above, the price reached a new low and then reversed into a higher level.

And the upper shadow is nonexistent, or minimal compared to the size of the lower shadow. With these three requirements met, we can confirm that the candle that we are analyzing is a valid hammer formation. This time we will illustrate the hammer candlestick in an uptrend. Below is the chart for the AUDNZD forex pair shown on the daily timeframe once again. Additionally, the body of the hammer candlestick will appear towards the upper range of the formation and represent approximately one third or less of the entire formation. The upper wick should be relatively small or nonexistent within this entire structure.

But what happens between the open and the, and the battle between buyers and sellers, is what makes candlesticks so attractive as a charting tool. The hammer has a long lower shadow, while the inverted hammer has a long upper shadow. However, the inverted hammer is formed at the end of the downtrend, while the shooting star occurs after a strong uptrend. We can do this quantitatively by using an indicator such as the Average True Range, ATR indicator. However, keep in mind our strategy does not explicitly call for utilizing any type of indicator study.

  • These candles denote indecision in a market and can signal both price reversals and trend continuations.
  • When the market found the support area, the lows of the day, bulls began to push prices higher, near the opening price.
  • While it may indicate a change in the trend, it requires confirmation.
  • The oscillator first crossed the oversold area from the bottom up.

Thank you so much for this post Raynor you have opened my eyes up to so much already and you make many other things more clear when it’s jumbled in my head. Thanks for all of your valuable information it has increased my knowledge tremendously and cleared a lot of things up. Hammer and inverted hammer candlesticks form at the bottom of a trend and suggest a future uptrend. As mentioned earlier, the color of the hammer and inverted hammer candlestick can be both green or red. A hammer candlestick pattern is a reversal structure that forms at the bottom of a chart.

Hammer Candlestick Pattern: Strategy Guide for Day Traders

The hammer candlestick pattern can be used to spot trend reversals in any financial market. When a tweezer top candlestick pattern occurs in an ongoing uptrend, the first bullish candlestick shows a continuation of the uptrend. And the next bearish candle opens where the previous candles close and high was.

A hammer candlestick signals an upward movement after a downtrend. So, you can either close the sell position or wait for a confirmation of the upward movement to open a buying one. Still, you can use the hammer pattern for different trading phases.

A closer look of the pattern will reveal that this declining pattern might make a market bottom in the days to come. 60.30% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. An engulfing line is a type of candlestick pattern represented as both a bearish and bullish trend and indicates trend continuation. A hammer pattern forms when a candle breaks out in the green and then it loses some of those gains.

Hammer and inverted hammer both are bullish reversal patterns. As per Encyclopaedia of Candlestick book, Hammer candlestick pattern has a ranking of 26 in bull market as a bullish reversal and it is really good. The pattern is plentiful, but the overall performance rank is 65. It means the pattern is on the far side of “good” when compared to other candles for performance over 10 days.


A hammer candlestick is a candlestick formation that is used by technical analysts as an indicator of a potential impending bullish reversal. A spinning top is a candlestick pattern with a short real body that’s vertically centered between long upper and lower shadows. With neither buyers or sellers able to gain the upper hand, a spinning top shows indecision.

Place Fibonacci retracements from the beginning of the downtrend to the low of the hammer. Typically we want the lower wick to represent at least two thirds the length of the entire candle formation. In the picture below, you can see bullish and bearish Inverted Hammers. The Harami candlestick is identified by two candles, the first of which being larger than the other “pregnant,” similarly to the engulfing line, except opposite. Last but not the least is that the pattern just occurs too often and knowing when to use it to make a trading decision can be a little confusing for most beginners.

This differs from the hammer, which occurs after a price decline, signals a potential upside reversal , and only has a long lower shadow. Price action traders typically utilize the hammer candlestick in two primary functions. The first and more popular use of this formation is as an entry technique. As with the hammer, you can find an inverted hammer in an uptrend too. But here, it’s called a shooting star and signals an impending bearish reversal. You can learn more about how shooting stars work in our guide to candlestick patterns.

As a take-profit, you can determine the next resistance to which the bulls are likely to push the price action. In this case, we opted for the previous swing low, which is now the resistance. As noted earlier, both of these patterns are considered to be powerful reversal patterns. On the other hand, an inverted hammer is exactly what the name itself suggests i.e. a hammer turned upside down. A long shadow shoots higher, while the close, open, and low are all registered near the same level.

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