TA School

Hammer Pattern

Spot the classic single-candle reversal pattern that signals a bottom and the start of a potential uptrend.

beginner level7 min read

Interactive Model

Interactive Visual Walkthrough

Hammer Bullish Bottom

Step 1 of 3
Prevailing Downtrend

The asset is in a clear downward trend, with price printing consecutive lower highs and lower lows. Sellers remain in control.

Why it matters: A reversal pattern requires an existing trend to reverse. The prior bearish pressure sets up the hammer.

What is a Hammer Pattern?

The Hammer is one of the most famous single-candle bullish reversal patterns in technical analysis. It is characterized by a small real body at the upper end of the trading range, a long lower shadow (wick), and little to no upper shadow.

When it forms at the end of a prolonged downtrendDowntrendA market direction characterized by a sequence of lower highs and lower lows.Read full glossary entry →, it signals that the market is searching for a bottom and that a trendTrendThe general direction in which a security or market is moving over time.Read full glossary entry → reversal to the upside may be starting.

Pattern Structure

A candlestickCandlestickA method of displaying financial price data that shows the open, high, low, and closing prices of a security for a specific time period.Read full glossary entry → must meet specific structural guidelines to be classified as a Hammer:

  1. Location: Must appear after an established series of lower highs and lower lows (downtrendDowntrendA market direction characterized by a sequence of lower highs and lower lows.Read full glossary entry →).
  2. Real Body: A small body located at the top of the session's range. The body can be bullish (green) or bearish (red).
  3. Lower Shadow: The lower wick must be at least two times the height of the real body.
  4. Upper Shadow: There should be little to no upper shadow (ideally less than 10% of the candle's total range).

Psychology Behind the Pattern

The psychology of a Hammer is a story of buyer resilience and trendTrendThe general direction in which a security or market is moving over time.Read full glossary entry → exhaustion:

  • Initial Panic: The session opens, and sellers immediately push the price down, continuing the prevailing bearish momentum and making a new local low.
  • Institutional SupportSupportA price level where buying pressure is strong enough to prevent the price from falling further. It represents a "floor" on the chart.Read full glossary entry →: At the cheaper price levels, buyers step in aggressively (accumulationAccumulationA phase in the market cycle where institutional traders buy large quantities of an asset quietly over a period of time, keeping the price relatively r...Read full glossary entry →), perceiving the asset as undervalued.
  • The Squeeze: Short sellers are forced to cover their positions as buying pressure expands. Buyers drive the price all the way back up to close near the day's open.
  • Result: The long lower shadow shows that any selling attempts were rejected, leaving sellers exhausted and buyers in firm control heading into the next session.

Identification Rules

To identify a high-probability Hammer pattern:

  • Look for the candle at key supportSupportA price level where buying pressure is strong enough to prevent the price from falling further. It represents a "floor" on the chart.Read full glossary entry → zones, trendlines, or moving averages.
  • Ensure the lower wick is clearly twice the body height.
  • Look for an increase in volumeVolumeThe total number of shares, contracts, or units of a security traded during a specified time period.Read full glossary entry → on the Hammer day, which confirms institutional participation.
  • Check that there is very little to no upper wick.

Trading Setup

  • Entry: Buy on the open of the candle after the Hammer, provided it confirms the pattern by rising above the Hammer's high. Alternatively, wait for that confirmation candle to close.
  • Stop-Loss: Place the stop-loss orderStop-Loss OrderAn order placed with a broker to sell an asset when it reaches a specific price, designed to limit a trader's loss on a position.Read full glossary entry → just below the lowest point of the Hammer's lower shadow. A break below this level invalidates the bullish reversal structure.
  • Take Profit: Target the next logical resistanceResistanceA price level where selling pressure is strong enough to prevent the price from rising further. It represents a "ceiling" on the chart.Read full glossary entry → zone or key moving average, aiming for a risk-to-reward ratioRisk-to-Reward RatioA measure used to compare the potential profit of a trade against its potential loss. A ratio of 1:2 means the trader is risking $1 to potentially mak...Read full glossary entry → of at least 1:2.

Common Mistakes

[!WARNING]

  • Trading in Consolidations: Do not trade a Hammer that appears in a flat, sideways range. The pattern requires a prior downtrend to carry reversal weight.
  • Skipping Confirmation: Entering a trade without waiting for the next candle's bullish follow-through can result in buying right before the downtrend resumes.
  • Ignoring Wick Ratios: Trading a candle with a short lower wick that doesn't meet the 2x body height requirement. This represents weak rejection.

Key Takeaways

  • •Hammer is a single-candle bullish reversal pattern occurring at the bottom of a downtrend.
  • •The lower shadow must be at least two times the height of the real body.
  • •Little or no upper shadow should be present.
  • •The color of the body is not critical, but a bullish (green) body carries stronger reversal strength.
  • •Confirmation is required by a strong bullish follow-through candle closing above the hammer body.
Knowledge CheckQuestion 1 of 5

What is the minimum required ratio of the lower shadow to the real body for a valid Hammer?

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