We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
Oil - US Crude
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • UK's Parliament votes 322 to 306 for the Letwin amendment to delay a Brexit deal until legislation is in place, attempting to assure a no-deal scenario off the table
  • Another failure Boris!
  • RT @vtchakarova: British PM Johnson says won't negotiate further Brexit delay with EU. The EU also made it very clear (see Juncker’s recent…
  • How will the Trump impeachment process affect #forex and US stocks? Find out from Rupert Osborne, @IG_US, only on Trading Global Markets #podcast. Missed the episode? Read up here: https://t.co/1Bgo0Fl5CV https://t.co/BRNvqHVjYY
  • RT @bbclaurak: I'm told that's the advice from Cabinet Secretary - legal default is still leaving at end of this month, because they can't…
  • RT @bbclaurak: No 10 claims chances of no deal go up if Letwin passes - 'the govt will step up no deal preparations immediately as the risk…
  • RT @NSoames: I shall vote against The Letwin amendment and for the Deal
  • RT @Robert___Harris: On the eve of tomorrow’s rushed Commons vote I keep thinking of the journalist Phillip Knightley’s memo to the executi…
  • The $AUD has wilted as markets price in further rate cuts even as the OCR hovers at just 1%. Those cuts may come, but labor market strength may have to wane first. Get your market update from @DavidCottleFX here: https://t.co/h1Uvm8ogXh https://t.co/M1IP0jqh41
  • The inside bar pattern occurs regularly within the financial markets. Incorporating the inside bar strategy within a trading system can enhance a trader’s market analysis technique. Find out how you can use it from @WVenketas here: https://t.co/E3EWOYTYNw https://t.co/ZCT4pwc6nv
Hammer Candlestick Patterns: A Trader’s Guide

Hammer Candlestick Patterns: A Trader’s Guide

2019-06-20 15:18:00
Richard Snow, Markets Writer

Trading with the Hammer Candle: Main Talking Points

The hammer candlestick pattern is frequently observed in the forex market and provides important insight into trend reversals. It’s crucial that traders understand that there is more to the hammer candle than simply spotting it on a chart. Price action and the location of the hammer candle, when viewed within the existing trend, are both crucial validating factors for this candle.

This article will cover:

  • What is a hammer candle pattern?
  • Advantages and limitations of the hammer chart pattern
  • Using a hammer candlestick pattern in trading
  • Further reading on trading with candlestick patterns

What is a Hammer Candlestick?

The hammer candlestick is found at the bottom of a downtrend and signals a potential (bullish) reversal in the market.The most common hammer candle is the bullish hammer which has a small candle body and an extended lower wick – showing rejection of lower prices.The other pattern traders look out for is the inverted hammer, which is an upside-down bullish hammer.

Bullish Hammer Candlestick

The hammer candlestick appears at the bottom of a down trend and signals a bullish reversal. The hammer candle has a small body, little to no upper wick, and a long lower wick - resembling a ‘hammer’.

The pattern indicates that the price dropped to new lows, but subsequent buying pressure forced the price to close higher, hinting at a potential reversal. The extended lower wick is indicative of the rejection of lower prices.

Hammer candlestick appearing at the bottom of a downtrend

Inverted Hammer Candlestick

The inverted hammer candlestick, like the bullish hammer, also provides a signal for a bullish reversal. The candle is, as the name suggests, an inverted hammer. The candle has a long extended upper wick, a small real body with little or no lower wick.

The candle opens at the bottom of a downtrend before the bulls push price upwards – reflected in the extended upper wick. Price does eventually return down towards the opening level but closes above the open, to provide the bullish signal. Should the buying momentum continue, this will be seen in the subsequent price action moving higher.

Inverted Hammer pattern at the bottom of a downtrend

Advantages and Limitations of the Hammer Candlestick

Hammer candles have their advantages and their limitations; therefore, traders should never rush into placing a trade as soon as the hammer candle has been identified.


  • Reversal signal: The pattern indicates the rejection of lower prices. When found in a downtrend it could signal the end of selling pressure and begin to trade sideways or reverse to the upside.
  • Exit signal: Traders that have an existing short position, can viw the hammer candle as an indication that selling pressure is subsiding - presenting the ideal time to close out of the short position.


  • No indication of trend: The hammer candle does not take the trend into consideration and therefore, when considered in isolation, can provide a false signal.
  • Supporting evidence: In order to enter into high probability trades, it is important for traders to look for additional information on the chart that supports the case for a reversal. Such confluence can be found by assessing whether the hammer appears near a major level of support, pivot point, significant Fibonacci level; or whether an overbought signal is produced on the CCI, RSI or stachastic indicator.

Using Hammer Candles in Technical Analysis

The following example of how to trade the hammer candlestick highlights the hammer candle on the weekly EUR/USD chart.

Hammer candle appearing at the base of a downtrend

Traders can make use of hammer technical analysis when deciding on entries into the market. Looking at a zoomed-out view of the above example, the chart shows how price bounced from newly created lows before reversing higher. The zone connecting the lows acts as support and provides greater conviction to the reversal signal produced by the hammer candlestick.

Stops can be placed below the zone of support while targets can coincide with recent levels of resistance – provided a positive risk to reward ratio is maintained.

hammer candle appearing at support in a downtrend EUR/USD

Learn more about Trading with Hammer Candles

  • If you are just starting out on your trading journey it is essential to understand the basics of forex trading in our New to Forex trading guide.
  • The hammer candlestick is just one of many candlestick patterns that all traders should know. Improve your knowledge by learning the Top 10 Candlestick Patterns.
  • For more information on reversal patterns, read our article on Trading the Bullish Hammer Candle.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.


News & Analysis at your fingertips.