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A powerful single-candle reversal signal that appears at the bottom of downtrends, showing buyers stepping in to reject lower prices.
The Hammer is a single-candle bullish reversal pattern that forms at the bottom of a downtrend. It's characterized by a small body at the upper end of the trading range and a long lower shadow that's at least twice the length of the body.
The pattern gets its name from its shape - it looks like a hammer with a handle pointing down. The long lower shadow represents a period during the session where sellers pushed price significantly lower, but buyers stepped in and drove price back up near the open.
The story of the Hammer is one of rejected weakness. During the session, sellers made their move - they pushed price down aggressively, testing the conviction of any remaining bulls and hunting for stops below obvious support.
But something changed. Whether it was value buyers stepping in, short-covering, or simply the exhaustion of selling pressure, the market reversed course. By the close, buyers had reclaimed most or all of the session's losses.
The long lower shadow is the *evidence of the battle*. The small body at the top is the *verdict*: sellers tried and failed. When this happens at the end of a sustained downtrend, it often marks the point where sentiment shifts from bearish to bullish.
Conservative: Enter on a break above the hammer's high, confirmed by a bullish candle close.
Aggressive: Enter at the close of the hammer candle if other confluence factors align.
Place stop below the low of the hammer's shadow. This is the point where the pattern is invalidated - if price returns to that level, the "rejection" failed.
T1: Previous swing high or nearest resistance level. T2: Measured move equal to the hammer's total range projected upward. T3: Use trailing stop on 50% position for extended moves.
Minimum 1:2 R:R required. Hammers with longer shadows naturally offer better R:R due to tighter stops.
A hammer is only as good as the context it appears in. The same candle shape can be a high-probability reversal signal or noise - the difference is where it forms and what surrounds it.
The longer the lower wick relative to the body, the stronger the signal. A hammer with a wick 3x the body length at a major support zone is high-probability.
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