Hammer candlestick pattern: rules, context and confirmation

What is the hammer candlestick pattern?

A hammer is a single-candle bullish reversal pattern that forms after a decline. It has a small body at the top of the session's range, a long lower wick and little or no upper wick. The shape tells a short story: sellers pushed the stock well below the open, buyers bought it back, and the session closed near its high.

The name describes the shape, a head on a long handle, and the location completes the definition. A hammer marks a session in which lower prices were rejected after a fall. Whether that rejection matters depends on the sessions that follow.

How to identify a hammer candle

The common conventions describe proportions rather than exact prices, so measure the candle before naming it. Use the same thresholds every time, so that candles from different stocks and dates are judged alike.

1. The lower wick is at least twice the height of the body.
2. The upper wick is absent or very short; a common working limit is about a tenth of the session's range.
3. The body sits in the upper part of the range. It can be bullish or bearish, and some chartists give a little more weight to a bullish body because the close is then above the open.
4. The candle follows a decline of several sessions.

With a lower wick five times the body and an upper wick of 4.5% of the range, the candle meets both proportions comfortably. A body that is tiny relative to the range moves the candle toward a dragonfly doji; the reading is similar, and the context still decides.

Hammer or hanging man: the trend decides

A hammer needs a prior decline; in the figure, closes fell 11.2% over the ten sessions before it. The identical shape after an advance is called a hanging man, and it is read the opposite way: the long lower wick shows that sellers could push price well down during the session, an early sign that the advance is meeting supply.

• Hammer: after a decline; a bullish reading, confirmed by a higher close, often above the hammer's high.
• Hanging man: after an advance; a bearish warning, confirmed by a close below the hanging man's body, and many chartists treat it as weak until then.
• Inverted hammer: after a decline, a small body at the bottom of the range with a long upper wick. Buyers tried to lift price and could not hold it, so it needs a strong next session even more than a hammer does.
• Dragonfly doji: the hammer shape with no body at all, the open and close at or near the high.

A hammer at support carries more information than one in open space. At a prior swing low, the bottom of a range or a rising 200-session moving average, the long lower wick shows buyers defending a price that already mattered.

Confirmation: the next close

The hammer itself only shows that lower prices were rejected for one session. Confirmation is the next session closing above the hammer's close; a stricter test is a close above the hammer's high, which shows buyers carrying the recovery further.

• In the figure, the next session closes at $50.20, above the hammer's high of $49.40, the stricter form of confirmation.
• A next session that closes lower but holds above the hammer's low leaves the hammer unconfirmed rather than failed.
• A close below the hammer's low ($47.20 in the figure) invalidates the pattern: the price that buyers defended has given way.

After a long lower wick, the distance from a confirming close down to the hammer's low can be large. Knowing that distance before acting is part of planning rather than of reading the pattern; see position sizing.

Volume analysis for a hammer

Heavy volume on a hammer shows that many shares changed hands near the lows and that buyers absorbed the selling. Light volume shows a quieter session in which fewer participants rejected the lower prices.

• In the figure, the hammer session trades 1.9 times the average volume of the previous ten sessions and the confirming session 1.4 times.
• A hammer on very heavy volume after a sharp fall can mark a capitulation low, where the last sellers leave at once.
• Volume on the confirming session matters as much as on the hammer itself: a recovery that continues on light volume has less support behind it.
• Volume is relative. Compare it with the stock's own average, not with other stocks.

Failure examples: when a hammer gives way

A hammer fails when the low it set is broken. In the hypothetical example below, the hammer forms on below-average volume, the next session closes lower without breaking the low, and two sessions after the hammer a close below its low ends the bullish reading; the decline then continues.

• It forms in a steady, orderly decline rather than after a sharp drop or at support.
• Its volume is lighter than in the sessions before it.
• The next session closes lower, so buyers did not return.
• A falling 50-session moving average sits just above, where rebounds may meet selling.

Hammer vs inverted hammer vs hanging man

Several candles share the hammer's proportions or mirror them. The table separates them by where the long wick is and what came before.

The pairs differ in location, not in shape: a hammer and a hanging man can be identical candles, as can an inverted hammer and a shooting star. That is why one candle can carry opposite readings on two charts, and why the prior trend belongs in the definition.

Research checklist

Open the stock in Stock Charts with a 3M range so that each candle is easy to measure, and keep the volume pane in view. TradeClever does not flag hammers; the steps below are for reading the candle yourself.

1. Measure the decline before the candle in sessions and percent.
2. Write down the open, high, low and close, and check the two wick proportions.
3. Mark the hammer's low as the invalidation level and its high as the stricter confirmation level.
4. Mark nearby support and the position of the 50- and 200-session moving averages.
5. Compare volume with the ten-session average.
6. Record the next close and the outcome, including hammers that failed.