What is the hammer candlestick pattern?

How to recognize it

A hammer meets three conditions of shape and one of context:

• Small body at the top of the candle’s range. It can be green or red.
• Long lower shadow, with a common rule of thumb of at least twice the size of the body.
• Very short upper shadow, or none at all.
• Context: it appears after a decline. Without a prior drop, there’s nothing to reverse.

The same shape goes by another name depending on where it appears. After a rally it’s called a hanging man and is read as a warning of weakness. There’s also an inverted version: the inverted hammer, with the long shadow on top, which also appears after a decline.

An example with numbers

An example stock has been falling for several sessions. One day it opens at $50.20, plunges to $47.80, rebounds strongly, and closes at $50.30, with a high of $50.40.

• Body: from 50.20 to 50.30, just $0.10.
• Lower shadow: from 47.80 to 50.20, $2.40. That’s 24 times the body.
• Upper shadow: from 50.30 to 50.40, $0.10.

The story is clear: sellers dominated during the day, but by the close buyers had won back practically everything. If the next day the price closes above $50.40, the hammer’s high, the buying reaction is confirmed.

How it’s used in practice

A hammer is worth more when other factors line up:

• It appears at support or in a zone where price has bounced before.
• Volume that day is above average, a sign of real participation in the rejection.
• The next candle confirms with a close above the hammer’s body or high.

Its shape also helps you plan the risk: the low of the shadow is a natural reference for placing a stop loss, because if price breaks below it again, the idea of a rejection no longer holds. With that distance you can work out the risk/reward ratio before deciding anything.

Inverted hammer and hanging man

Two close relatives are often confused with the hammer:

• Inverted hammer: a small body at the bottom and a long upper shadow, also after a decline. It shows buyers tried to push higher with force; even though they didn’t hold the price, it’s the first sign of buying interest. It needs even more confirmation than a regular hammer.
• Hanging man: identical to the hammer, but after a rally. It warns that there was heavy selling in that session that, for now, was absorbed. If the next candle closes below its body, the warning carries more weight.

The practical rule is always the same: context first, then shape, and confirmation last.

Common mistakes

• Ignoring context: a hammer in the middle of a sideways range has no decline to reverse.
• Acting before the close: a candle that looks like a hammer at midday can end up as a long-bodied bearish candle.
• Skipping confirmation: the hammer says there was a rejection on one day; it doesn’t guarantee the decline is over.