Forex Glossary

Hammer

 

Hammer

The Hammer is a bullish reversal pattern that consists of one long lower shadow, a small body, and little or no upper shadow. It’s formed when the open, high, and close prices are near each other, and the low prices are significantly lower. With the lowest shadow being at least double the size of the actual body, this design creates a candlestick with a hammer shape, that is the hammer has to look similar to a ‘T’. The shadow of the candlestick displays the period’s high and low prices, while the body shows differences between both the beginning and ending prices.

 

How to identify Hammer 

To identify a Hammer pattern, look out for the following;

  • Hammer candlesticks usually show up after a price drop. Their lower shadow is long and their real body is small.
  • The candlestick happens when sellers enter the market when prices are falling. Buyers absorb selling pressure and drive the market price closer to the opening price by the time of market close.
  • The close can occur above or below the opening price, but the close must be near the open for the candlestick’s real body to stay small.
  • The lower shadow has to be at least twice as tall as the real body should be.
  • The candlesticks suggest that there may be an upward price reversal. After the hammer, the price must begin to rise. 

 

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