Trading Education — Hammer Reversal (Candlesticks)
James - Pump Trading
1:39 PM・Jan 29, 2026
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Alright, this one matters.
The Hammer is a single candle that often shows up right when a downtrend is running out of gas. Simple shape. Big message.
At a glance:
Small body up top.
Long lower wick.
Almost no upper wick.
Looks like a hammer hanging down.
What actually makes it a Hammer (no shortcuts):
It must come after a clear downtrend. No downtrend = no signal.
The real body sits in the upper part of the candle.
Lower wick is long. At least 2–3x the body.
Upper wick is tiny or not there at all.
Miss one of these and it’s just a random candle. No excuses.
What’s happening under the hood:
Sellers were in control early. They pushed price hard, flushed stops, scared the last weak hands out.
Then… they lost control. Buyers stepped in. Shorts started covering. Selling pressure dried up.
By the close, price snapped back up and erased most of the damage.
That long lower wick is the fight.
The small body near the top is the result.
Sellers tried. Sellers failed.
When this prints after a long bleed, sentiment often shifts right there. Not always. But often enough to respect it.
Context matters (read this twice):
A hammer in an uptrend? Ignore it.
A hammer with a fat upper wick? Invalid.
The edge comes from location, not the shape alone. Bottom of a move. Everyone still bearish. That’s where it works.
How to trade it (keep it clean):
Conservative: wait for the next candle to close above the hammer’s high.
Aggressive: enter at the hammer close if you already have confluence.
Stop goes below the hammer low. That’s the line in the sand.
Targets? Previous swing high, or use the full hammer range as a measured move.
Opposite pattern is the Hanging Man. Same shape, totally different story. Shows up at the top of an uptrend and flips bearish.
This is a page from my free trading encyclopaedia, dropping in the next few months.
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