A hammer candlestick is a type of bullish reversal pattern that appears on price charts, typically at the end of a downtrend. It's widely used in technical analysis to signal a potential bottom or support level.
Characteristics of a Hammer Candlestick:
Small Real Body: Located at the upper end of the trading range.
Long Lower Shadow: At least twice the length of the real body.
Little or No Upper Shadow.
Occurs After a Downtrend: Its context is crucial—it must follow a decline.
What It Tells You:
The long lower shadow shows that sellers drove prices lower during the session.
The small body and close near the high suggest buyers stepped in strongly, pushing prices back up.
This shift from bearish to bullish sentiment can indicate a reversal or at least a pause in the downtrend.
Example:
If a stock has been falling and then forms a hammer:
Open: $95 Low: $85 High: $96 Close: $94
The lower shadow is $10 (from $85 to $95), which is much larger than the body ($1 from $95 to $94), forming a hammer.
Would you like a chart example or want to compare it with the inverted hammer?