Hammer
Definition
A single-candle reversal pattern with a small body near the top of the candle and a long lower wick — at least twice the body length. It signals that sellers pushed price significantly lower during the session but buyers regained control and closed near the open.
Example
“"A hammer right at the 50-day moving average support got me interested — when the next candle confirmed with a strong close, I entered long."”
Detailed Explanation
The hammer is one of the most widely watched candlestick patterns because it visually encodes a battle between buyers and sellers — and shows that buyers won. The long lower wick represents the range sellers managed to push price down. The small body near the top shows that despite all that selling pressure, buyers recovered almost all the ground by the close.
A hammer is only meaningful in context. It must form at the bottom of a downtrend or at a defined support level — a technical area where you'd expect buyers to show up. A hammer in the middle of a range or at a random price means nothing. The more confluence you have — hammer at support, at a moving average, at a round number, after a volume spike — the stronger the signal.
Color matters less than location and wick length. A red (bearish body) hammer is called a hanging man when it appears at the top of a trend and carries different implications. At the bottom of a move, even a red hammer is considered bullish because the recovery is more important than whether the close finished above or below the open.
Confirmation is critical. Wait for the next candle to close bullish and above the hammer's high before entering. Aggressive traders enter at the close of the hammer candle itself; conservative traders wait for confirmation, accepting a slightly worse entry in exchange for higher probability. Stop-loss placement belongs below the hammer's low — that's the level sellers would need to reclaim for the pattern to be invalidated.