The Hammer is a single-candle pattern which typically occurs at the bottom of a downward price trend.
Considered a reliable bullish reversal signal, the Hammer candlestick is characterized by a small body (either bullish or bearish) and a close near its opening price. The lower wick should be at least 2-to-3 times the length of the candle’s body. There is (almost) no upper wick. Â
According to Bulkowski, the Hammer pattern acts as a bullish reversal approx. 60-percent of the time suggesting the reversal pattern is relatively reliable with traders typically measuring the height of the Hammer candle and using it as their take profit level in trading setups.
Used on all time frames, traders will should await the following candle for reversal confirmation – that is; price should open higher than the close of the previous period and price action tools such as Fibonacci lines, pivot points and psychological whole numbers studied before entering a trade.