Hammer Candlestick on a Live Gold Chart

What it shows

Each hammer gets a blue label marked H under the candle’s low. Every label on the chart is a candle that passed the rules on this page.

How Pravex works it out

1. What counts as long or small for the hammer moves with the market, since the yardstick is a 14-candle exponential average of body sizes, where a body is the distance from open to close, so a quiet stretch lowers it and a busy one raises it.
2. The hammer is one candle. Its body has to be small (below the average) and must not be a doji. The hammer rule calls a candle a doji when its body is no more than 5% of its high-to-low range.
3. The lower shadow, from the bottom of the body to the low, must be at least 2 times the body. The upper shadow, from the top of the body to the high, may be no more than 10% of the candle’s range. The colour of the body does not matter.
4. The downtrend the hammer needs is read from the hammer candle itself: by default its close must sit below the 50-candle simple average, and the trend setting can make the hammer test stricter or switch it off.
5. Example numbers, not a live price: a candle with a high of 2,010, a low of 1,990, an open of 2,006 and a close of 2,008 has a body of 2, a lower shadow of 16 and an upper shadow of 2. That is 8 times the body below and 10% of the range above, so the shape passes if 2 is under the average body and the close sits below the 50-candle average.

Settings

Setting	Default	What changing it does
Trend check	SMA50	Decides what counts as a downtrend before the hammer. By default one close is read against the 50-candle average; adding the 200-candle average asks for a longer trend before the hammer, and switching the check off ignores the trend completely.
Label colour	Blue (#2196F3)	The fill of the H label under the low of each candle where the hammer pattern is complete; its white text needs a colour it reads well on.

How traders read it

The hammer tells you about one candle’s fight. A lower shadow that long means prices under the body were tried and refused within the same candle. On its own that is a hint that the selling has run into buyers. The usual confirmation is the next candle closing above the hammer’s high; a close under its low cancels the idea.

The low of the hammer gives you a natural place for a stop, since a move under it means the buyers who defended that level have given up. The size of the candle then tells you the risk. A hammer on the 1-hour gold chart might risk a few dollars; the same shape on the daily chart can risk a lot more, which changes the position size.

Location matters more than the shape. A hammer at a level the market has bounced from before, or at the bottom of a long fall, carries more weight than one in the middle of a choppy range.

When it misleads

Our trend test is simple: one close under the 50-candle average counts as a downtrend, so a hammer can be marked after a small dip in a market that is rising overall. The same shape also appears in the middle of ranges, where it means little. A hammer that forms on very quiet candles, with a tiny range, says less than one with a range wider than its neighbours. Wait for the close before trusting a hammer label on the latest candle, which is checked on each update and can lose its label.

Questions and answers

Is a hammer candlestick bullish?

It is read as a bullish sign after a fall, because buyers pushed the price back up from the low before the close. On its own it is not a buy signal. The common check is a close above the hammer’s high on the next candle.

What is the difference between a hammer and a hanging man?

The shape is the same. A hammer comes after a fall (a close below the 50-candle average by default) and is read as bullish. A hanging man comes after a rise and is read as bearish. Pravex marks them as two separate patterns.

Does the colour of a hammer matter?

Our rules accept both a rising and a falling body. A rising body closed above its open, so you can give it a little more weight, but the long lower shadow is what defines the pattern.

How is a hammer different from a dragonfly doji?

A hammer has a small but real body. If the body is 5% of the range or less, Pravex calls it a doji instead, and with almost no upper shadow it becomes a dragonfly doji.

Related: Inverted Hammer - Bullish, Hanging Man - Bearish, Dragonfly Doji - Bullish, Long Lower Shadow - Bullish, every indicator.