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

Pattern Psychology: The pattern shows sellers initially driving price lower, but buyers stepped in strongly at lower levels and pushed price back up near the opening price. This rejection of lower prices demonstrates potential buying interest and trend reversal.

Key Characteristics

Attribute	Details
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: 1H

Additional 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: 1H

Take 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: 1H

Stop 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: 1H

Additional Entry Orders (SHORT) - Not recommended

Additional entries not recommended for SHORT strategy using Hammer. Use other bearish indicators like:

• Hanging Man

• Bearish Engulfing

• Evening Star

• 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: 25

Stop 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: 1H

Advanced Strategy Combinations

Multi-Timeframe Hammer (LONG)

Setup

Higher Timeframe Confirmation:

• Daily: Hammer + RSI < 40

• 4H: Trend reversing (EMA(21) turning up)

• 1H: Hammer execution + Volume confirmation

Execution

Support Level Bounce (LONG)

Setup Process:

1. Price approaches key support level

2. Hammer forms at support

3. Volume increases on hammer candle

4. RSI shows bullish divergence

Execution:

• Base Order: Hammer at support

• Additional: Price confirms support hold

• Take Profit: Resistance levels, overbought conditions

• Stop Loss: Break below support with volume

Risk Management Guidelines

Position Sizing

Strategy Type	Position Size	Conditions
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

High Reliability

✅ Appears at established support levels ✅ High volume on hammer candle ✅ Follows extended downtrend ✅ Long lower shadow (2x+ body size) ✅ Small body at upper end

Low Reliability

Best Practices

For LONG Strategies

1. Support context - Most effective at key support levels

2. Volume confirmation - Ensure higher volume on hammer candle

3. Shadow length - Longer lower shadow indicates stronger reversal

4. Follow-through - Confirm with next candle's bullish action

For SHORT Strategies

1. Extreme overbought only - Only consider in deeply overbought conditions

2. Counter-trend risk - Use smaller position sizes

3. Quick profits - Take profits fast on any decline

4. 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

Market Type	LONG Strategy Effectiveness	SHORT Strategy Effectiveness
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

Pattern	Relationship	Link
Hanging Man	Opposite context	Hanging Man
Bullish Engulfing	Similar bullish signal	Bullish Engulfing
Morning Star	Three-candle bullish	Morning Star
Dragonfly Doji	Similar rejection pattern	Dragonfly Doji

Conclusion

Hammer is primarily a LONG signal indicating potential upward price movement when it appears at support levels. The pattern shows strong rejection of lower prices and demonstrates buying interest at key levels.

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.

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