On This Page
Key Takeaways
- A hammer has a small body near the high and a lower shadow commonly defined as at least twice the body size.
- The same geometry is a hammer after a decline and a hanging man after an advance.
- Body color is secondary to range location, shadow proportions, and preceding trend.
- The worked hammer recovers from $28.80 to close at $31.30; the next session closes above its $31.40 high.
- Specify the prior decline, completed shape, confirmation event, entry, invalidation and target.
What is a hammer candlestick?
A hammer candlestick is a single candle with a small body near the high, a long lower shadow, and little or no upper shadow that appears after a decline. Sellers push price well below the open during the period, buyers drive it back near the high by the close, and the candle’s high and low become the reference levels for a long setup.
The identical shape after an advance is a Hanging Man. Either body colour can qualify; preceding trend supplies the name.
How to identify a hammer: body and shadow rules
Body = |close − open|. Lower shadow = min(open, close) − low. Upper shadow = high − max(open, close).
This example uses a positive body, lower shadow at least twice the body, upper shadow at most 15% of total range, and the entire body in the range’s top third. The last condition means high − min(open, close) is at most one-third of high − low.
A candle with no body is a doji, so it never gets a shadow/body ratio. A near-zero body can satisfy more than one named shape rule, so read the actual measurements.
Formula
For real body B > 0 and range R > 0, this example requires lower shadow ≥ 2B, upper shadow ≤ 15% of R and the entire body within the top third of R, after a decline.- Real body equals |close − open| and lower shadow equals min(open, close) − low.
- Top-third placement means (high − min(open, close)) / R ≤ 1/3. A candle with no body is a doji and gets no shadow/body ratio.
Hammer candlestick example
After a multi-session decline, a stock opens at $31.20, trades to $28.80, reaches $31.40, and closes at $31.30.
- |$31.30 − $31.20| = $0.10 real body
- $31.20 − $28.80 = $2.40 lower shadow
- $31.40 − $31.30 = $0.10 upper shadow
- $2.40 / $0.10 = 24 lower-shadow-to-body ratio
The $0.10 body sits entirely in the top third of the $2.60 range, the $2.40 lower shadow is 24 times the body, and the $0.10 upper shadow is 3.85% of range. After the decline, the next $32.20 close exceeds the $31.40 high and activates this example’s next-close rule.
Three completed candles close at $34.00, $32.90 and $31.30. The hammer then has O $31.20, H $31.40, L $28.80 and C $31.30.
Its $0.10 body, $2.40 lower shadow and $0.10 upper shadow add to the $2.60 range. The lower shadow is 24 body lengths. The body occupies 3.85% of range and its lower edge lies just 7.69% of range below the high.
The following candle closes at $32.20, above the $31.40 hammer high. This meets the example’s next-session closing confirmation rule.
Hammer confirmation, entry, and stop placement
Mark the $31.40 high as the trigger and decide whether a close above it or an intrabar trade through it fires the order. The close confirms more, and the intrabar trigger enters sooner.
Enter on the $32.20 confirmation close with a stop just below the $28.80 hammer low, then divide the dollars you will risk by that per-share distance to size the position.
How traders use the hammer pattern
Locate the setup at Support or Resistance, and compare participation with Relative Volume. Read the hammer and its confirmation on the same interval and session.
Carry the same levels into the contract choice: Options Flow shows whether large orders are buying the bounce, Gamma Exposure places the put wall and call wall against the hammer low, and the Options Profit Calculator prices each structure. Add target, timing, premium and volatility to turn the chart setup into an options scenario.
Limitations of the hammer pattern
- Require a prior decline and a close above the hammer’s high. Without the decline the shape carries no bullish reversal meaning, and the confirming close gives up part of the move to show buyers following through.
- Fix the chart interval and session before scanning. A hammer on a daily chart may not appear on an hourly chart, and extended-hours prices can change the candle.
- Fix your shape thresholds before you scan. Sources and platforms set different cutoffs, so the same candle can pass on one screen and fail on another.
- Keep the stop below the hammer’s low. Inside a strong downtrend a hammer can be followed by new lows, and that stop defines the planned loss.
Bottom line
A hammer marks a period where buyers rejected lower prices, and its high and low give clear trigger and stop levels. Act on it once a close above the high confirms the turn, and favor hammers that form at support on rising volume.
Clear answers
Frequently Asked Questions
Sources and Further Reading
How entries are sourced, calculated and updated: editorial methodology.