Hammer

Appearance: This is a two-candle pattern in an downtrend, where the second candle has a small body, a large lower shadow, a small (or no upper) shadow and the body of the second candle gaps below that of the previous candle.

Criteria: There must be a current downtrend. The body of the second candle should gap below the previous body or if not should only penetrate the previous body slightly.

Effect: The Hammer means that the downtrend has continued during that candle, but has fallen away towards the end ­ the momentum not being maintained. It is a weak upturn signal.

Note: In candlestick descriptions, "white (green)" refers to an up-bar, and "black (red)" refers to a down-bar. Individual traders prefer different bar colors. For example, we personally trade with candles set to green for up and red for down. (TradeStation defaults their Candlesticks to this color convention.) Most related textbooks use white (or green, if color is used) for up and black (or red) for down.