A hammer is a candlestick pattern when a stock opens then moves a lot lower during the day then rallies back near the opening price. This candlestick pattern looks like a hammer with the long lower wick from the lows of the day looking like the handle and the opening and closing price body form what looks like the hammer’s head. The lower wick is usually twice the size of the candle body but can be even bigger. 

Fast facts about hammer candlesticks:

  • A hammer candle is the first step for a reversal signal during a downtrend. 
  • Hammer candlesticks have a small body formed from the open and close and a long wick signaling a big intra-day reversal. 
  • A hammer signals that a chart ran out of sellers at lower prices and buyers stepped in to bid prices back up near the open. 
  • A move higher with the next candlestick confirms the reversal. 
  • Most traders buy the next day if their is a confirmation candle not on the hammer candle day. 
  • The close can be a little lower or higher than the open. 
  • The lower wick is usually more than two times the range in comparison versus the open and closing price range. 

Hammer Candlestick examples:

Hammer Candlestick

Chart courtesy of StockCharts.com

Hammer Candlestick

Chart courtesy of TrendSpider.com

By Steve Burns

After a lifelong fascination with financial markets, Steve began investing in 1993 and trading his accounts in 1995. It was love at first trade. After more than 30 successful years in the markets, Steve now dedicates his time to helping traders improve their psychology and profitability. New Trader U offers an extensive blog resource with more than 4,000 original articles, online courses, and best-selling books covering various topics.