The Hammer is a single candlestick pattern that appears at the bottom of a downtrend, suggesting a potential reversal to an uptrend. It indicates that although sellers controlled the price initially, buyers stepped in, rejecting lower prices, which could signal the weakening of the downtrend.
Characteristics
- Appears after a downtrend, indicating a potential shift in market direction.
- Small real body near the top of the candlestick.
- Long lower wick (at least twice the size of the real body), indicating strong rejection of lower prices.433ewdscxcdsc
- Little to no upper wick, meaning price did not rise significantly during the session.
- Green hammer (bullish) is a stronger signal than a red one.
Market Psychology
- Sellers push the price down, continuing the downtrend.
- Buyers step in aggressively, rejecting lower prices and pushing the price back up.
- The long lower wick signals strong buying pressure, showing that sellers lost control.
- The small body at the top suggests that buyers are regaining strength, increasing the chances of a reversal.
Confirmation
- The next candle should close above the hammer’s high to confirm the reversal.
- A high volume on the confirmation candle strengthens reliability.
- More effective when appearing near support levels or key moving averages.
- Can be validated with indicators like RSI (oversold region) or MACD crossover.
Limitations
- Needs confirmation from the next candle to avoid false signals.
- Low volume reduces the reliability of the pattern.
- Less effective in sideways markets, where price action lacks strong trends.
- Works best when combined with other technical indicators to increase accuracy.