What is Hammer Candlestick?
A hammer is a bullish reversal candlestick pattern with a small body at the top and a long lower shadow (at least 2x the body), showing that buyers rejected lower prices during the session.
Hammer Candlestick Explained
The hammer gets its name from hammering out a bottom. The long lower shadow shows that sellers pushed the price significantly lower during the session, but buyers stepped in aggressively, pushing the price back up near the open. Hammers are most significant when they appear after a downtrend and at established support levels. Confirmation comes from a bullish candle on the next session.
Real-World Example
A stock has been falling for a week. On Monday, it opens at $50, drops to $46 intraday, but closes at $49.50. The long lower wick and small body near the top create a hammer pattern. If the stock closes green on Tuesday, this confirms the hammer as a potential bottom signal.
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