Hammer Pattern

The Hammer is a bullish reversal candlestick pattern that forms during a downtrend. It has a small body near the high with a long lower shadow, resembling a hammer.

Usage

require 'sqa/tai'

open  = [100.0, 99.0, 98.0, 96.0, 94.0]
high  = [100.5, 99.5, 98.5, 96.5, 95.0]
low   = [98.0, 97.0, 95.0, 92.0, 90.0]
close = [99.0, 98.0, 96.0, 94.5, 94.5]

# Detect Hammer patterns
hammer = SQA::TAI.cdl_hammer(open, high, low, close)

if hammer.last == 100
  puts "Hammer detected - Bullish reversal signal!"
end

Parameters

Parameter	Type	Required	Description
open	Array	Yes	Array of opening prices
high	Array	Yes	Array of high prices
low	Array	Yes	Array of low prices
close	Array	Yes	Array of closing prices

Returns

Returns an array of integers: - 0: No Hammer pattern - 100: Bullish Hammer detected

Pattern Characteristics

• Small body: At upper end of trading range
• Long lower shadow: At least 2× body length
• Little/no upper shadow: Close near high
• Forms in downtrend: Reversal signal

Visual Pattern

  -----  (small body near top)
    |
    |
    |
    |
    |    (long lower shadow)

Interpretation

• After downtrend: Bullish reversal signal
• Shows rejection of lower prices
• Buyers stepping in at lower levels
• Potential bottom formation
• Best with confirmation candle

Related Patterns

• Inverted Hammer: Long upper shadow (also bullish)
• Hanging Man: Same shape but in uptrend (bearish)
• Dragonfly Doji: Open/close at high (similar sentiment)

Example: Hammer in Downtrend

open, high, low, close = load_ohlc_data('AAPL')

hammer = SQA::TAI.cdl_hammer(open, high, low, close)
sma_20 = SQA::TAI.sma(close, period: 20)

if hammer.last == 100
  # Verify downtrend context
  in_downtrend = close[-2] < sma_20[-2] && close[-2] < close[-10]

  if in_downtrend
    puts "Hammer in downtrend - Strong reversal signal!"
    puts "Current: #{close.last.round(2)}"
    puts "Wait for bullish confirmation candle"
  else
    puts "Hammer detected but not in downtrend"
    puts "Less reliable - exercise caution"
  end
end

Example: Hammer with Confirmation

open, high, low, close = load_ohlc_data('TSLA')

hammer = SQA::TAI.cdl_hammer(open, high, low, close)

# Check previous bar for hammer
if hammer[-2] == 100
  hammer_close = close[-2]
  confirm_close = close[-1]

  # Confirmation: next candle closes above hammer body
  if confirm_close > hammer_close
    puts "Hammer CONFIRMED by bullish candle!"
    puts "Hammer close: #{hammer_close.round(2)}"
    puts "Confirmation close: #{confirm_close.round(2)}"
    puts "High probability long entry"

    # Calculate entry, stop, target
    entry = confirm_close
    stop = low[-2] - (low[-2] * 0.005)  # Below hammer low
    risk = entry - stop
    target = entry + (risk * 2)  # 2:1 reward

    puts "\nTrade Setup:"
    puts "Entry: #{entry.round(2)}"
    puts "Stop: #{stop.round(2)}"
    puts "Target: #{target.round(2)}"
    puts "Risk:Reward = 1:2"
  end
end

Example: Hammer at Support

open, high, low, close = load_ohlc_data('MSFT')

hammer = SQA::TAI.cdl_hammer(open, high, low, close)

# Find support level (recent low)
support = close[-60..-1].min

if hammer.last == 100
  # Check if hammer formed at support
  distance_from_support = ((close.last - support) / support * 100).abs

  if distance_from_support < 2  # Within 2% of support
    puts "Hammer at support level!"
    puts "Current: #{close.last.round(2)}"
    puts "Support: #{support.round(2)}"
    puts "High probability reversal zone"
    puts "Buyers defending support + hammer = strong signal"
  end
end

Example: Hammer with Volume

open, high, low, close, volume = load_ohlc_volume_data('NVDA')

hammer = SQA::TAI.cdl_hammer(open, high, low, close)

if hammer.last == 100
  avg_volume = volume[-20..-1].sum / 20.0

  if volume.last > avg_volume * 1.5
    puts "Hammer with HIGH VOLUME!"
    puts "Volume: #{volume.last.round(0)} (avg: #{avg_volume.round(0)})"
    puts "Strong buying pressure at lows"
    puts "Very bullish signal"
  elsif volume.last < avg_volume * 0.7
    puts "Hammer with low volume"
    puts "Weaker signal - less conviction"
    puts "Wait for volume confirmation"
  else
    puts "Hammer with normal volume"
    puts "Standard setup - wait for confirmation"
  end
end

Example: Hammer with RSI

open, high, low, close = load_ohlc_data('GOOGL')

hammer = SQA::TAI.cdl_hammer(open, high, low, close)
rsi = SQA::TAI.rsi(close, period: 14)

if hammer.last == 100
  current_rsi = rsi.last

  if current_rsi < 30
    puts "Hammer in OVERSOLD territory!"
    puts "RSI: #{current_rsi.round(2)}"
    puts "Multiple bullish signals converging"
    puts "High probability reversal"
  elsif current_rsi < 40
    puts "Hammer with RSI below 40"
    puts "RSI: #{current_rsi.round(2)}"
    puts "Good reversal setup"
  else
    puts "Hammer but RSI at #{current_rsi.round(2)}"
    puts "Not oversold - lower probability"
  end
end

Trading the Hammer

Conservative Entry (Recommended)

# Wait for confirmation candle
if hammer[-2] == 100 && close[-1] > close[-2]
  entry = close[-1]
  stop = low[-2]
  puts "Enter long at #{entry} with stop at #{stop}"
end

Aggressive Entry

# Enter on hammer close
if hammer.last == 100
  entry = close.last
  stop = low.last
  puts "Enter long at #{entry} with stop at #{stop}"
end

Stop Loss Placement

# Stop below hammer's low
if hammer[-2] == 100
  stop_loss = low[-2] - (low[-2] * 0.005)  # 0.5% buffer
  puts "Stop loss: #{stop_loss.round(2)}"
end

Target Setting

# Use 2:1 or 3:1 reward:risk
if hammer[-2] == 100
  entry = close[-1]
  stop = low[-2]
  risk = entry - stop

  target_2to1 = entry + (risk * 2)
  target_3to1 = entry + (risk * 3)

  puts "Target (2:1): #{target_2to1.round(2)}"
  puts "Target (3:1): #{target_3to1.round(2)}"
end

Example: Complete Hammer Trading System

open, high, low, close, volume = load_ohlc_volume_data('AAPL')

hammer = SQA::TAI.cdl_hammer(open, high, low, close)
rsi = SQA::TAI.rsi(close, period: 14)
sma_50 = SQA::TAI.sma(close, period: 50)

# Check previous bar
if hammer[-2] == 100
  # Context checks
  in_downtrend = close[-2] < sma_50[-2]
  oversold = rsi[-2] < 40
  confirmation = close[-1] > close[-2]

  avg_volume = volume[-20..-2].sum / 19.0
  high_volume = volume[-2] > avg_volume * 1.3

  # Support check
  recent_low = close[-60..-2].min
  at_support = (close[-2] - recent_low).abs < recent_low * 0.02

  # Calculate score
  score = 0
  score += 1 if in_downtrend
  score += 1 if oversold
  score += 1 if confirmation
  score += 1 if high_volume
  score += 1 if at_support

  puts "Hammer Pattern Analysis:"
  puts "Downtrend: #{in_downtrend ? 'Yes' : 'No'}"
  puts "Oversold RSI: #{oversold ? 'Yes' : 'No'} (#{rsi[-2].round(2)})"
  puts "Confirmation: #{confirmation ? 'Yes' : 'No'}"
  puts "High Volume: #{high_volume ? 'Yes' : 'No'}"
  puts "At Support: #{at_support ? 'Yes' : 'No'}"
  puts "\nSetup Score: #{score}/5"

  if score >= 4 && confirmation
    entry = close[-1]
    stop = low[-2]
    risk = entry - stop
    target = entry + (risk * 2.5)

    puts "\n*** HIGH PROBABILITY LONG SETUP ***"
    puts "Entry: #{entry.round(2)}"
    puts "Stop: #{stop.round(2)}"
    puts "Target: #{target.round(2)}"
    puts "Risk: #{risk.round(2)} (#{((risk/entry)*100).round(2)}%)"
    puts "Reward: #{(target-entry).round(2)} (#{(((target-entry)/entry)*100).round(2)}%)"
    puts "R:R = 1:2.5"
  elsif score >= 3
    puts "\nDECENT SETUP - Monitor closely"
  else
    puts "\nLOW PROBABILITY - Skip this trade"
  end
end

Hammer Quality Factors

Factor	Good	Better	Best
Shadow Length	2× body	3× body	4×+ body
Trend Context	Down	Strong down	Capitulation
RSI	< 50	< 40	< 30
Volume	Average	1.3× avg	2×+ avg
Support	None	Near	At major level

Note: Array elements should be ordered from oldest to newest (chronological order)

Common Mistakes

1. Trading without confirmation: Wait for next candle
2. Ignoring trend context: Need downtrend for reliability
3. No volume confirmation: High volume adds conviction
4. Wrong timeframe: Works better on daily+ charts
5. Ignoring support levels: Strongest at support zones

Reliability

• High: After downtrend, at support, with volume, confirmed
• Medium: In downtrend with confirmation
• Low: Without downtrend context or confirmation

See Also

• Shooting Star - Bearish opposite
• Pattern Recognition Overview
• Back to Indicators
• Basic Usage