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Definition

A bullish reversal candlestick pattern implying that an upward trend is likely to begin. The hammer consists of a candle which has a lower shadow about twice the length of the body of the candle. The upper shadow for this candle should be small or non-existent. The colour of the candle is not important, however a green candle does add strength to the signal. The most important thing about this formation is the length of the lower shadow: the longer this is, the stronger the signal and the more likely that an upward trend is likely to occur.
<figure class="container-fluid"><img class="img-responsive" style="display: block; margin: 0 auto; max-width: 100%;" src="/onlinecourse/img/glossary/The-Hammer.jpg" alt="the-hammer" />
<figcaption style="text-align: center;">Hammer Candlestick Formation </figcaption>
</figure>
Consider the following chart of the S&P500 index in the last few trading days at the end of 2021:
<img src="http://www.pdsnet.co.za/onlinecourse/images/Hamm_gloss.png" />
S&P500 Index: 14 December 2021 - 3 January 2022. Chart by ShareFriend Pro.
 
Here you can see the hammer formation which occurred on 20th December 2021. Note that the downward tail is about twice as long as the body of the candle and that there is no upper tail. It is not important that the candle is red (indicating that it closed below its opening price). What is significant is that the bears made a determined effort to take the index down on that day and were ultimately beaten back by the bulls - resulting in a long downward tail. You can see that in the following days the index rose sharply to a new all-time record high on 29th December 2021.

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