The Hammer Chart pattern often suggests the bottom of a downtrend. It is often the case that the pattern begins with buyers pushing up the price considerably, then sellers come in to try and save the trend and price closes around the same area as the open price.

The Hammer is characterized by a small Real Body near the top of the price range. The Real Body can be black or white, although a white candlestick is preferable. A white candlestick is slightly more bullish since it shows that the market sold off sharply during the session and then rebounded to close slightly above the opening price level. The Hammer chart has a long Lower Shadow and an Upper Shadow that is very small or non-existent.

A Hammer can be confirmed by a bullish gap between the Real Body of the Hammer and the open on the next session. In other words, the investor should look for the next session opening higher than the Real Body of the Hammer. The greater the gap, the stronger the signal.

The Hammer may be stronger if the subsequent session shows a white Real Body with a close higher than the close of the Hammer.

A Hammer is more significant if it is followed in the next session by another Hammer with superior characteristics.

Hammer Chart Patterns with longer Lower Shadows have greater significance.The smaller the Real Body and the Upper Shadow the greater the significance of the pattern.