Hammer candlestick

The Hammer

The Japanese name for the hammer pattern is takuri, which means testing the water for its depth. The hammer pattern is quite similar in appearance to the hanging man pattern but it occurs in a downtrend and is a bullish signal that warns of a possible trend reversal. The candlestick is called a hammer because it hammers out a base at the bottom of the downtrend. The long lower shadow of the hammer is a bullish signal regardless of the color of the candlestick's real body. It indicates that the underlying sold off sharply but demand returned, forcing the price back up to close at or near the high for that period.