Hammer and Inverted Hammer Trading Patterns

Hammer is a candlestick market reversal pattern, which indicates a market reversal. Hammer candlesticks resemble Hanging man pattern, but they are formed after a downtrend. Hammer candlestick pattern is so named because they are hammering out the bottoms.



Hammer candlestick is a small colored (dark) or clear (white) candlestick with no, or very small, upper shadow – which indicate highest price of the day, and a long lower shadow – which indicate lowest price of the day. The lower shadow should be double the length of candlestick body. Hammer pattern is produced when there is high selling pressure at opening hours but after that bulls have managed to bring the price close to the opening price.

Inverted hammer candlesticks are colored or clear candlesticks with no low lower wick and long upper wick. Inverted hammer are produced after a significant downtrend where market opens at lower ranges, but bulls have dominated most of the day bringing the price to upper ranges, but fails to sustain the move.

Both hammer and inverted hammer are considered less reliable trading patterns. Their reliability increases with decrease in length of candlestick body, increase in length of lower wick (for hammer) and upper wick (inverted hammer), increase in trading volume and with the formation of clear (bullish) candlesticks. With both hammer and inverted candlesticks, confirmation of trend reversal is strongly recommended, which can be a large trading gap, bullish candlestick, or higher price close on the following day.

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