Definition
Hammer
A hammer is a bullish reversal candlestick with a small body at the top and a long lower wick, found after a decline.
The long lower shadow shows that sellers pushed the price down during the session but buyers fought back to close near the high, hinting that selling pressure is exhausting. When it appears at the bottom of a downtrend, it is read as a potential reversal signal. Its bearish cousin at a top is the hanging man.
Indian traders look for a hammer on Nifty, Bank Nifty, or stocks near a support zone or after a sharp fall, and they wait for the next candle to close higher as confirmation before acting. Volume on the hammer adds weight to the signal.
Related terms
- DojiA doji is a candlestick with a tiny or absent body, signalling indecision between buyers and sellers.
- Shooting StarA shooting star is a bearish reversal candlestick with a small body at the bottom and a long upper wick, found after a rally.
- Engulfing PatternAn engulfing pattern is a two-candle reversal where the second candle's body completely swallows the first.
- Support and ResistanceSupport is a price level where buying tends to halt a fall; resistance is a level where selling tends to cap a rise.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.