The small body sits at the top of the candle. The long lower wick shows sellers pushed price far down — but buyers stepped in and pushed it right back up before the close.
What is a Hammer?
A Hammer is a single-candle pattern with a small body at the top and a lower wick at least twice the length of the body. There is little to no upper wick. The colour of the body (green or red) matters less than the shape — though a green hammer is considered slightly stronger.
It gets its name from the visual shape — it looks like a hammer with a short head and a long handle pointing downward.
What Does a Hammer Tell You?
The Hammer tells a very clear story. During the period, sellers pushed price significantly lower — the long lower wick proves it. But then buyers came flooding in and drove price all the way back up, closing near the top of the range. The sellers tried and failed. Buyers are showing strength.
This is why a Hammer at the bottom of a downtrend is meaningful: it shows the downward momentum is being absorbed and reversed by buyers who see value at these lows.
Hammer vs. Hanging Man
The Hammer and the Hanging Man look identical — same shape, same proportions. The only difference is where they appear:
Hammer
Appears at the bottom of a downtrend. Bullish reversal signal — buyers are stepping in.
Hanging Man
Appears at the top of an uptrend. Bearish warning — even though buyers recovered, the long wick shows sellers are entering.
How to Trade the Hammer
- ✓ Look for it after a clear, sustained downtrend — not after just one or two red candles.
- ✓ The stronger the prior downtrend, the more powerful the reversal signal.
- ✓ Wait for confirmation — the next candle should close green and above the Hammer’s body.
- ✓ Extra weight if it forms at a key support level or a round number price.
- ✓ Volume spike on the Hammer candle adds significant confirmation.
- ✗ Don’t trade a Hammer mid-trend or in sideways chop.
- ✗ Don’t skip waiting for the confirmation candle — a Hammer can fail.
Stop loss placement: When trading a Hammer reversal, place your stop loss just below the low of the Hammer’s wick. If buyers are truly in control, price should not revisit that low.