Hammer

A Hammer is a single Japanese candlestick pattern. It forms during a downtrend and signals a potential trend reversal.

Hammer consists of a small body that emerges after a significant drop in price. The candle has a long lower shadow that is at least twice as large as the actual body. There is little or no upper shadow.

It's possible that the price is nearing a bottom and is about to reverse upward.

A Hammer candlestick pattern can be recognized by following criteria:

1. A distinct downtrend must occur before the candle forms;
2. Either a very short upper shadow or no upper shadow at all present on the candle;

3. The lower shadow of the candle needs to be quite tall — at least twice as tall as the body;

4. The candle should be confirmed the following day, with the price trading above the Hammer’s body.

The Hammer candlestick provides traders with the advantage of identifying bullish reversal opportunities pretty early. The disadvantage on the other hand, is that there is still a failure chance, so traders should wait for confirmation before making any trades based only on this formation.