Short answer
What is a hammer candlestick?
A hammer is a single candle with a small body near the top of its range and a lower wick at least twice as long as the body, formed after a fall. It shows sellers pushed price down but buyers pushed it back up before the close. It is a bullish reversal sign once the next candle confirms it, and matters most at a demand zone.
Key takeaways
- A hammer has a small body in the upper part of its range, a lower wick at least twice the body and little or no upper wick.
- It must form after a fall. The same shape after a rise is a hanging man, a bearish warning.
- The colour of the body matters less than the location; a green hammer is slightly stronger than a red one.
- Wait for confirmation: the next candle should close above the hammer's high.
- The stop loss goes below the hammer's low or the demand zone's distal line, whichever is lower.
- By the 50% rule a hammer is a base candle, so at a demand zone it is part of the base and the green candle after it is the leg out.
What is a hammer candlestick?
During a hammer's period, sellers drive price well below the open, then buyers step in and lift it back to close near the high. The long lower wick is the record of that rejected selling. That is why a hammer after a fall is read as a possible turn: the lower prices found buyers.
- Small body in the upper third of the candle's range.
- Lower wick at least twice the length of the body.
- Little or no upper wick.
- After a fall: the pattern needs a decline before it.
What is the difference between a hammer and a hanging man?
Hammer — after a fall
Hanging man — after a rise
Inverted hammer — after a fall
Shooting star — after a rise
The same two shapes get different names by location: a long lower wick is a hammer after a fall and a hanging man after a rise; a long upper wick is an inverted hammer after a fall and a shooting star after a rise.
A hammer and a hanging man look identical. The only difference is where they form. After a fall, the long lower wick shows buyers rejecting lower prices: a hammer. After a rise, the same wick shows sellers were able to push price down sharply during the session, even though buyers recovered by the close: a hanging man, an early warning that the rally may be tiring.
| Pattern | Long wick | Forms after | Bias |
|---|---|---|---|
| Hammer | Lower | A fall | Bullish, needs confirmation |
| Hanging man | Lower | A rise | Bearish warning, needs confirmation |
| Inverted hammer | Upper | A fall | Bullish, needs stronger confirmation |
| Shooting star | Upper | A rise | Bearish, needs confirmation |
Why does a hammer work best at a demand zone?
A hammer's wicks make up most of its range, so by the 50% rule it is a base candle. When it forms after a strong red candle and a strong green candle then leaves it, the hammer is the base of a Drop-Base-Rally demand zone. Its long lower wick also tells you where buyers stepped in, which is often where the zone's distal line sits.
A hammer that forms at an existing fresh demand zone is stronger evidence still: price returned to an area with pending buy orders, and those buyers showed up during the session. A hammer far from any zone has no such support behind it.
How do you trade a hammer candlestick?
- Check the location: a fall into a fresh demand zone on your trading timeframe, ideally inside a higher-timeframe zone.
- Let the hammer candle close.
- Wait for confirmation: the next candle closes above the hammer's high.
- Enter just above that confirmation close, or on a pullback towards the hammer's body.
- Place the stop loss just below the hammer's low or the zone's distal line, whichever is lower.
- Set the target at least twice the risk and check it is clear of the next supply zone.
What are common mistakes with the hammer pattern?
- Calling it a hammer after a rise: that shape is a hanging man.
- Buying before the candle closes: an intraday hammer can close as a long red candle.
- Skipping confirmation: many hammers are followed by another leg down.
- Stop inside the wick: the wick shows where price already travelled; the stop belongs below it.
- Ignoring the higher timeframe: a daily hammer under strong weekly supply has little room.
Frequently asked questions
Is a hammer candle bullish?
A hammer is a bullish reversal sign when it forms after a fall, especially at a demand zone. It is not a buy signal by itself: wait for the next candle to close above the hammer's high. The same shape after a rise is a hanging man, which is a bearish warning.
Does the colour of a hammer matter?
Only a little. A green hammer, which closes above its open, shows buyers finished slightly stronger than a red one. Location and confirmation matter far more than colour, so many traders treat both as hammers.
How long should the lower wick of a hammer be?
The usual rule is at least twice the length of the body, with little or no upper wick. A longer lower wick shows a stronger rejection of lower prices. For a candle with a ₹3 body, the lower wick should be at least ₹6.
Where should the stop loss be for a hammer trade?
Just below the hammer's low, or below the demand zone's distal line if that is lower. The low marks the point where buyers took over; if price trades below it again, the reversal idea has failed.
What is an inverted hammer?
An inverted hammer has the opposite wick: a small body near the low with a long upper wick, formed after a fall. It shows buyers tried to push higher but could not hold the gain. It is a weaker signal than a hammer and needs a stronger confirmation candle.
Put this into practice
Work out the numbers before the market moves, then let an alert bring you back to your own plan.
Educational content only. Nothing here is investment advice or a recommendation to buy or sell any security. Chart diagrams use illustrative prices, not market data. Trading involves risk of loss; verify prices independently and apply your own risk process.