The Hammer candlestick pattern is a bullish reversal pattern which signals the potential end of a downtrend as well as the beginning of an uptrend. This pattern is characterized by a small real body (black or white) near the low of the day, and a long lower shadow that is at least twice the length of the real body. The long lower shadow represents the inability of the sellers to maintain control, as the buyers pushed prices higher and ultimately close near the day’s high.
When is the hammer pattern formed?
The Hammer pattern can be formed after a downtrend. The appearance of this pattern is considered a bullish sign which indicates that the market may be shifting from a bearish form to a bullish one. However, traders should note that the hammer pattern does not guarantee trend reversal, and hence traders should also consider other technical and fundamental factors before making a trading decision.