Hammer candle
Also called: Hammer, Hammer candlestick, Inverted hammer, Hanging man, Çekiç mumu
A candle with a small body at the top and a lower wick at least twice the body; at the bottom of a decline it shows selling was bought back.
4 min read · one puzzle on the page
What does a hammer candle tell you?
A hammer has a small body sitting at the top of the candle with a long wick hanging below it. The rule is simple: the lower wick should be at least twice the body, and the upper wick either absent or very short. It looks like a hammer with the handle pointing down.
Here's what happened inside it: sellers pushed price down hard, then buyers stepped in and reclaimed almost all of that drop. The close landed near the high. The lower prices were rejected.
The same shape doesn't mean the same thing everywhere. A hammer at the bottom of a decline, on clear support, is not the same candle as a hammer in the middle of a sideways market. The first can show selling running out; the second is noise. At the top of a rally the same shape is called a hanging man and tells a different story.
How do you spot a hammer on a chart?
Start by measuring. Open 2,341, close 2,344, low 2,333, high 2,345. Body 3, lower wick 8, upper wick 1: the lower wick is more than twice the body and the upper wick is short. That's a hammer. A green body reads slightly stronger, but a red hammer is still a hammer.
Then look at the location. Is there a decline before it? Did the wick reach a support, the bottom of a range or a previous low? A wick that dips just under a prior low and closes back above it also tells you the stops there were swept. A hammer that meets a level says far more than one hanging in empty space.
Most traders wait for the next candle as confirmation. If it closes above the hammer's high, buyers have taken over. More aggressive traders enter on the hammer's close, getting a better price with less confirmation.
The logical stop sits a little below the tip of the wick. A close beneath that low means the idea that selling was bought back has failed. Close at 2,344 and wick at 2,333 puts the stop around 2,331, a risk of 13 points; that distance is your 1R.
Try it on a chart
This chart ends at the bottom edge of a range with a candle turning up on a lower wick; it may not match the textbook hammer ratio exactly, but it asks the same question. Look at where the wick sits, which side of the level the close is on, and where the stop would go.
Price has been going back and forth in the same range for a while; now it has dropped to the lower edge and the candle turned with a lower wick. What do you do?
No sign-up needed. Make your call; when the chart opens you'll see why.
The most common hammer mistake
Seeing the shape and forgetting the place. Buying every candle with a lower wick means trading the middle of ranges and the halfway point of strong declines. There the wick is just a wiggle; no level is being defended.
Ignoring the wick's length. On a very long-wicked hammer the stop goes under the wick, so the distance grows. Enter with your usual size and you take two or three times your normal risk on one trade. If the distance is long, shrink the position; don't pull the stop up to the middle of the wick.
Confusing the hanging man with a hammer. The shape is identical, but it appears at the top of a rally where buyers are tiring. The same candle can mean the opposite depending on where it sits.
When does a hammer fail?
In a sharp, news-driven sell-off, one hammer usually isn't enough. While the wave of selling continues, a one-candle bounce from buyers doesn't last, and the next candle breaks the hammer's low with ease.
If the higher timeframe trend is down, a hammer on the small chart is usually a brief bounce before the next leg lower. With the 4-hour chart still printing lower highs, a hammer on the 5-minute may give you no more than a small pop.
Also check what's just above. With resistance close by there's little room to go; a 13-point stop against a 10-point target doesn't even pay 1R on paper.
Frequently asked questions
Is a hammer candle bullish or bearish?
A hammer that forms at the bottom of a decline, on support, is a bullish reversal sign: sellers pushed price down but buyers reclaimed most of the drop. Confirmation is the next candle closing above the hammer's high. The same shape at the top of a rally is called a hanging man and can signal tiring buyers. In the middle of a range, neither reading carries much weight.
What is the difference between a hammer and an inverted hammer?
In a hammer the small body sits at the top and the long wick points down: price fell and the selling was bought back. In an inverted hammer the body sits at the bottom and the long wick points up: buyers tried to push higher but couldn't hold it into the close. Both are read as possible reversals at the bottom of a decline, but the inverted hammer is weaker and needs a strong next close more.
Where do you put the stop on a hammer?
A little below the tip of the hammer's lower wick. If price closes beneath that low, the idea that selling was bought back is invalid. A long wick means a long stop; in that case shrink the position instead of moving the stop up. If the wick's tip lines up with an obvious low, a small buffer below it keeps a second sweep from taking you out early.
