Hammer and inverted hammer

Two candles that look like rejection

A hammer is one of the first patterns most traders learn, and for good reason — it has a clean, readable shape. Picture a single candle with a small body parked at the top of its range and a long lower wick stretching down. The lower wick must be at least twice the length of the body, and the upper wick should be tiny or missing. That shape tells a small story in one bar: sellers pushed price down during the session, but buyers stepped back in and closed the candle near its high. The lower wick is the failed sell attempt. The body near the top is who actually controlled the close.

An inverted hammer flips this shape vertically. Small body at the bottom of the range, long upper wick stretching up, almost no lower wick. It also tends to appear after a price drop, and it suggests buyers tried to push price higher before sellers closed it back down. The geometry is similar — about a 2-to-1 wick-to-body ratio — but the location of the body is reversed. Both patterns belong to the same family: single-candle attempts at rejection.

Context matters more than the shape. A textbook hammer in the middle of a sideways chart is mostly noise. The same hammer tagging a previous support level after a clean downswing is far more interesting. The candle is just the messenger. What it is telling you depends on where it shows up. Beginners often spot a hammer and immediately want to buy. The honest path is slower: identify the pattern, then check the context. Is there a downswing? Is there structure underneath that could absorb sellers? Did the next candle close higher and confirm the rejection?

Statistical reality check: hammers and inverted hammers, on their own, do not have a strong predictive edge in random conditions. Studies that simply count every hammer on a chart usually find win rates near a coin flip. Their value shows up when they appear at meaningful locations and get confirmed. Treat them as one piece of evidence, not as a buy signal by themselves. The rest of this chapter will keep coming back to that principle.

Recap: hammer = small body at top, lower wick at least 2x body. Inverted hammer = small body at bottom, long upper wick. Both need a prior downswing and ideally a location that matters.