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Glossary · Candlestick patterns

Hammer

A bullish reversal candle after a decline: a small body near the high and a long lower wick at least twice the body's length.

By Sky Trade editorial teamUpdated

A hammer appears after a fall. Its body is small and sits at the top of the candle's range, its lower wick is long — usually at least twice the body — and there is little or no upper wick. The story: sellers drove price down during the period, buyers pushed it back, and the close ended near the high.

Context is what makes a hammer. The same shape in an uptrend is called a hanging man and is read differently. A hammer in the middle of a range, far from any level, is just a candle with a long wick.

Traders usually look for:

  • a preceding decline, because the pattern needs something to reverse;
  • a location at support or another known level;
  • confirmation, such as the next candle closing above the hammer's high.

Without confirmation, many hammers simply mark a pause before the decline continues. Body colour matters less than location, though a bullish body is often considered slightly stronger.

For Higher/Lower trades, a hammer at support is a possible Higher setup, but its signal applies to the next few candles at most, so a long expiry dilutes it. See hammer and hanging man and the reversal pattern entry.

Example

USD/JPY falls to support at 149.80. An M15 candle opens at 149.95, dips to 149.78 and closes at 150.00: a 5-pip body with a 17-pip lower wick. The next candle closes at 150.12, confirming the hammer.

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