A hammer is a single candle with a small body near the top and a long lower wick — at least twice the body's height — appearing after a decline. The shape records a complete story in one period: sellers drove price sharply lower, then buyers absorbed everything and slammed it back up to close near the high. The downside was tested and rejected.

Valid hammer checklist

1. Lower wick ≥ 2× the body
2. Little to no upper wick
3. Body in the top third of the candle's range — the close matters more than the color, though a green close is marginally stronger
4. After a decline — the identical shape in an uptrend is a hanging man, a (weak) bearish warning; without a preceding drop there's nothing to reverse

Context is 80% of the signal

A hammer floating mid-range means little — long wicks print constantly in chop. The hammer earns its reputation at a level:

• At established support — the classic bounce entry
• At the golden pocket of a Fibonacci retracement in an uptrend
• At VWAP or a rising moving average during a trend pullback
• After a liquidity sweep — the hammer's wick is the sweep, the close back above is the rejection

The same candle that's noise mid-range is, at a meaningful level, the trigger that most level-based strategies wait for.

How to trade it

• Entry: on the close of the hammer, or on the break of its high (more confirmation, worse price — test both)
• Stop-loss: below the hammer's wick low; if that low is revisited, the rejection failed
• Target: the next resistance / prior swing high; take partials at 2R
• Position size: hammers at volatile lows have long wicks and thus wide stops — size down accordingly, per the usual 1% risk rule

When hammers fail

In a strong downtrend without a level, hammers are just pauses — the "rejected" low gets taken out two candles later. Frequency of failure drops sharply when you demand (a) a real level and (b) trend context that permits a bounce. This is measurable: replay 50 hammers-at-support vs. 50 hammers-in-freefall and the difference will end the debate for you — the manual backtesting guide shows how to run exactly that comparison.

Practice recognizing it

Reading about wicks doesn't build the reflex; volume does. In chart replay, scan random historical charts candle by candle and call out every hammer and its context before advancing. After a few sessions, level-plus-hammer combinations start jumping off the chart — which is the actual skill.

FAQ

Is a hammer candlestick bullish?

At support after a decline, yes — it's one of the most trusted single-candle bullish reversal signals. The same shape without context is neutral. Location decides.

What's the difference between a hammer and an inverted hammer?

Mirror wicks: the hammer's wick points down (downside rejected at a low), the inverted hammer's wick points up after a decline — also a potential bottom, but weaker and needing next-candle confirmation.

Does the hammer's color matter?

Slightly — a green (bullish close) hammer edges out a red one, but the wick-and-location structure carries the signal. Never skip a textbook hammer at major support over body color.