Technical Glossary / Candlestick Patterns
Hammer
A small body at the top of the range with a long lower wick, after a decline.
Teaching sketch. It shows the shape, not a live quote and not a trade signal.
Definition
The hammer is a bullish reversal shape. Sellers drove price down during the period, and the close recovered near the open, leaving a lower shadow at least about twice the body. The upper wick is small. The name applies after a downswing. The same shape after an upswing is a hanging man.
How to identify it
Prior candles falling. Then one bar: small body in the upper third, long tail below, little wick above. Colour of the body is secondary. A close above the open is the stronger version.
Bullish reading
The long tail says the decline was rejected inside the period. Traders look for the next candle to close above the hammer high, ideally with the low left intact as a stop reference.
Bearish reading
If the next bar breaks the hammer low, the rejection failed. In a strong downtrend a hammer without a level is often just a bounce in the fall.
Common mistakes
Buying every long lower wick, including those in the middle of a rally, and calling them hammers. Context is part of the name.
Limitations
The pattern does not set a target. It only marks a low that either holds or does not.
This note explains the term. A sketch shows the shape of the idea. Neither is a recommendation, a signal, or a comment on any security. Indicator settings and exchange conventions differ. Check the live chart and the contract specification before you use a number.