What it looks like
It comes after a fall of several candles. The lower wick is long, typically at least twice the length of the body. The body is small and sits in the top part of the candle's range. There is little or no upper wick. The body can be up or down; the long lower wick is what matters.
What it means
Sellers had been in control and pushed price lower during the candle, but buyers stepped in and drove it back up to close near the top. That shows the selling met resistance from buyers at that level. It is a sign the fall is tiring, not proof that it has turned, which is why it needs a confirming close above its high.
How to trade it
- 1
Confirm: wait for the next candle to close above the hammer's high. No close above it, no trade.
- 2
Enter: buy on that confirming close, or on the open of the candle after it.
- 3
Stop: place it just below the hammer's low, the bottom of its long wick.
- 4
Target: aim for 2 times the stop distance, or the nearest swing high if it is closer.
- 5
Example: a hammer on the gold 15 minute chart has a 7 point range. The next candle closes above its high, you buy with a stop 1 point under the low, an 8 point risk, and aim 16 points higher.
A candle closing below the hammer's low. That means sellers took back the level they were rejected from, and the signal is cancelled.
Where it works best
At a floor: a previous swing low, a daily pivot, the previous day's low or a round number. It means far less in the middle of a range or on very low timeframes where wicks are common.
WickSpeak finds the hammer automatically on any chart and names it on the candles that made it. Next to the name it writes what the pattern is, how to trade it and what proves it wrong, so you never have to guess the rule. In Playbook you can use the hammer, or any of the 146 patterns, as a condition alongside up to 12 conditions on any of 12 timeframes, then backtest it on past candles with your costs.
Common mistakes
- Buying the hammer itself before the next candle closes above its high.
- Trading every long lower wick, even when there was no fall before it.
- Putting the stop inside the wick instead of just below the hammer's low.
Related patterns
Questions traders ask
Is a hammer candle bullish?
Yes, it is a bullish sign, but only a hint. It shows sellers were beaten back after a fall. It becomes tradable when the next candle closes above the hammer's high.
Does the colour of a hammer matter?
Not much. A hammer with an up body is slightly stronger because it closed above its open, but the long lower wick after a fall is what defines it. Either colour still needs the confirming close.
What is the difference between a hammer and a hanging man?
They look the same: a long lower wick and a small body at the top. A hammer forms after a fall and is bullish. A hanging man forms after a rise and is a bearish warning.
Where should the stop go on a hammer trade?
Just below the hammer's low, the end of its lower wick. A close below that low proves the pattern wrong, so there is no reason to stay in the trade after it.