The Hammer, which is similar to the Doji, is a single candle that represents a possible change in trend direction. Also similar to the Doji, the Hammer has a few different variations. A hammer has a long daily range compared to the difference between the closing and opening price. Unlike the Doji, The Hammer will have either a white or black body, with the white body being somewhat more bullish or a dark body being slightly more bearish. Below are two variations of the Hammer candle (Figures 5 & 6)
Figure 5 – Hammer
Figure 6 – Inverted Hammer
The significance of a Hammer is its long wick compared to its open and close. It depicts either buyers or sellers started the day off moving prices their desired direction. Once the price went up or down a significant amount, depending whether the initial pressure was selling or buying, the opposite side got the upper hand and were able to push prices the other direction showing the pressure of the trend was lessoning. On the day of a hammer, the signal will be improved by higher volume and the length of the prior trend. A Hammer can have either bullish or bearish overtones depending were it forms. If the trend was an up trend, the length of the wick warns of selling pressure. Even though the bulls were able to push prices back to the top of the daily range, the fact that they had to tells us the trend may be weakening.
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