Hammer
The Hammer is a candlestick patterns indicator used in Skyrexio Strategy Builder for pattern recognition and reversal/continuation signals.
Introduction
The Hammer is a bullish reversal candlestick pattern that signals potential LONG opportunities or SHORT position exits. This single-candle pattern features a small body at the upper end and a long lower shadow, indicating that sellers drove price lower during the session but buyers regained control and pushed price back up near the open.
How Hammer Works
Hammer is a single-candle bullish reversal pattern with specific characteristics:
• Small body - The real body is small relative to the entire candle • Long lower shadow - Lower shadow is at least twice the length of the body • Minimal upper shadow - Little to no upper shadow • Body position - Body appears at the upper end of the candle • Context matters - Most effective at support levels or after downtrends
Key Characteristics
Category
Candlestick Patterns
Type
Bullish Reversal Signal
Primary Use
LONG entries, SHORT exits
Timeframe
All timeframes supported (1m to 1M)
Confirmation
Volume, support levels, trend context
Strategy Applications
🟢 LONG STRATEGY (Primary Use)
Hammer is primarily a LONG signal - enter long positions when the pattern appears at support levels.
Base Entry Order (LONG)
Base Order Condition: Hammer Pattern Detected
First Condition: Hammer
Timeframe: 1H
Additional Confirmation:
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1HAdditional Entry Orders (LONG)
Additional Entry 1: Pattern confirmation with momentum
First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 35
OR
Additional Entry 2: Breakout above hammer high
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1HTake Profit Orders (LONG)
Rule 1: Exit condition - Target reached at resistance level
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H
OR
Rule 2: Exit condition - Overbought momentum warning
First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 75
OR
Rule 3: Exit condition - Bearish reversal pattern detected
First Condition: Hanging Man
Timeframe: 1HStop Loss Orders (LONG)
Rule 1: Stop loss - Pattern invalidated (price below hammer low)
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H
OR
Rule 2: Stop loss - Volume surge breaks bullish momentum
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H
OR
Rule 3: Stop loss - Bearish momentum confirmed
First Condition: MACD Line
Timeframe: 1H
Operator: Cross Below
Second Condition: MACD Signal Line
Timeframe: 1H🔴 SHORT STRATEGY (Secondary Use)
Hammer can be used in SHORT strategies as an exit signal or contra-trend bounce entry in extremely overbought conditions.
Counter-Trend Risk: Using Hammer for SHORT entries is high-risk and should only be considered in extreme overbought conditions with very tight risk management.
Base Entry Order (SHORT) - Contra-trend bounce
Base Order Condition: Hammer in overbought market
First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 80
AND
First Condition: Hammer
Timeframe: 1HAdditional Entry Orders (SHORT) - Not recommended
Additional entries not recommended for SHORT strategy using Hammer. Use other bearish indicators like:
Bearish divergence indicators
Take Profit Orders (SHORT) - Exit existing positions
Rule 1: Exit condition - Hammer signals trend reversal
First Condition: Hammer
Timeframe: 1H
OR
Rule 2: Exit condition - Support level reached
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H
OR
Rule 3: Exit condition - Oversold momentum exhaustion
First Condition: RSI
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 25Stop Loss Orders (SHORT) - Protect existing positions
Rule 1: Stop loss - Hammer confirms uptrend
First Condition: Hammer
Timeframe: 1H
OR
Rule 2: Stop loss - Resistance breakdown confirmed
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H
OR
Rule 3: Stop loss - Volume confirms breakout
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1HAdvanced Strategy Combinations
Multi-Timeframe Hammer (LONG)
Support Level Bounce (LONG)
Risk Management Guidelines
Position Sizing
LONG Strategy
Standard
Pattern appears at support
SHORT Strategy
Reduced (25-50%)
Counter-trend plays only
High Volume
Increase confidence
Can use larger size
Low Volume
Reduce size
Wait for confirmation
Pattern Reliability Factors
✅ Appears at established support levels ✅ High volume on hammer candle ✅ Follows extended downtrend ✅ Long lower shadow (2x+ body size) ✅ Small body at upper end
Best Practices
For LONG Strategies
Support context - Most effective at key support levels
Volume confirmation - Ensure higher volume on hammer candle
Shadow length - Longer lower shadow indicates stronger reversal
Follow-through - Confirm with next candle's bullish action
For SHORT Strategies
Extreme overbought only - Only consider in deeply overbought conditions
Counter-trend risk - Use smaller position sizes
Quick profits - Take profits fast on any decline
Tight stops - Use very tight stop losses
Common Mistakes to Avoid
Wrong context - Trading hammer in uptrends without support confirmation
No volume - Ignoring volume confirmation for the pattern
Body size - Accepting patterns with large bodies relative to shadows
Wrong direction - Don't go SHORT on Hammer without extreme conditions
Market Conditions Analysis
Downtrend
🟢 High (reversal signal)
🔴 Very Low (against trend)
Uptrend
🟡 Medium (continuation)
🔴 Low (counter-trend)
Ranging
🟢 High (at support)
🟡 Medium (at resistance only)
High Volatility
🟢 High (clear signals)
🔴 Low (whipsaws)
Low Volume
🔴 Low (wait for confirmation)
🔴 Very Low (avoid)
Related Patterns
Conclusion
Key Takeaways
PRIMARY USE: LONG entries at support levels
SECONDARY USE: SHORT exits when holding positions
TERTIARY USE: Counter-trend SHORT entries (high risk, overbought only)
ALWAYS: Confirm with Volume and support level context
Success with Hammer requires understanding its bullish nature and using it appropriately at support levels. The pattern's effectiveness increases significantly when combined with volume confirmation and proper market context.
Last updated