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Figure 1. Hammer pattern.

Figure 1. Hammer pattern.

Japanese name: kanazuchi
Forecast: bullish reversal
Trend prior to the pattern: downtrend
Opposite pattern: Hanging Man

Construction:

  • white or black candle with a small body
  • no upper shadow or the shadow cannot be longer than the body
  • lower shadow between two to three times longer than the body
  • if the gap is created at the opening or at the closing, it makes the signal stronger
  • appears as a long line

 

The Hammer is a frequent one-line pattern that appears as a long line in a downtrend. It is characterized by a candle having a long lower shadow, two to three times longer than the body. This requirement implies that a candle can be one of the following: White Spinning Top or Black Spinning Top. Most of the sources allow the presence of an upper shadow. CandleScanner software accepts upper shadow up to the length of the candle’s body. Also, the whole candle body has to be positioned under the trendline in order to consider the pattern as a valid one.

Although the pattern belongs to the bullish reversal patterns group, it very often happens that is merely a brief pause on the falling market, after which the price does move even lower. The Hammer works best in a long downtrend, and its appearance after the declines lasting only two or three candles usually does not matter. The strong meaning has its occurrence within a support zone. As every one-line pattern, the Hammer requires a confirmation within the next two or three candles, during which the closing prices should be higher than the closing price of the pattern's body.

The Hammer can also occur, for example, as a second line of the Bullish Harami pattern and as a first and second line of the Tweezers Bottom pattern.

It was already mentioned that the Hammer's lower shadow height cannot exceed more than three times the body's height. If a lower shadow exceeds that height, we deal with the Takuri Line pattern. In other words, the Takuri Line is like the Hammer but with a very long lower shadow.

 

Figure 2.

Figure 2.  The occurrence of Long Black Candle creates a resistance zone that is strengthened by a high trading volume. The bears are stopped however by an Opening White Marubozu. On the next day, the market opens slightly lower than the previous closing price. Market falls even deeper but eventually the bulls were able to retake control, and a Hammer pattern is formed. The disadvantage of its occurrence is a relatively low trading volume.
Now the Hammer, a bullish reversal pattern, has to be confirmed by breaking out of the resistance zone formed by the Long Black Candle two days earlier.
Next two days bring the Hammer confirmation strengthened by the occurrence of Turn Up pattern. Although straight after the market tries to turn down, the support zone formed by the Hammer and the first line of the Turn Up pattern is strong enough. The price moves eventually up.

 

Figure 3.

Figure 3. The first half of the chart presents a clear downtrend. The marked Black Candle occurrence is preceded by a number of black candles formed at a high trading volume, creating a significant resistance zone.
The first instance of Bullish Harami pattern contains a Hammer pattern in its second line. On the next day, the market almost cancelled the bullish signal, but finally another occurrence of Bullish Harami appeared on the chart.
It turns out that the resistance area formed by the Black Candle occurrence is strong, and the market is in a sideways forming a narrow price band between $28.50 and $29.40 (3.16%).
The chart shows the flexibility in searching the patterns. In the first occurrence of Bullish Harami, the first line is a short line, but there should be a long line as it was in the second occurrence of Bullish Harami. In this case, the short line does not differ much from the long line. Therefore, the pattern occurrence was perceived as appropriate, which was confirmed in the next few days.
Please note, however, that it is up to the trader whether he or she wants to treat this pattern as a valid Bullish Harami or not. When using computer algorithms for scanning the candlestick patterns we have to define some strict rules stating the effect on search results of having a short or long line. CandleScanner implemented even a more sophisticated approach: although we see on the chart that we have a short line, we can accept a small deviation and still allow the found pattern to be considered as a correct one. This deviation is a setting in the algorithm of CandleScanner application.

 

Hammer statistics

Below you can find some Hammer pattern statistics calculated by CandleScanner software. To see more detailed statistics, for other markets and periodicity try our CandleScanner software. Prices start at only $10, and you can see more detailed statistics, for other markets and periodicity. Click here to find out more!

Pattern name: Hammer
Scanner settings: daily stocks
Group: S&P500
Number of symbols: 502
Date range: 7/1/1995 - 6/30/2015
Time interval: daily candles
Total number of candlesticks: 2,236,421
Number of occurrences (Hammer): 9,944
Number of occurrences (all candlestick patterns): 638,570
% of occurrences (Hammer): 1.56 %
Average frequency: 224.9
Efficiency statistics (5 candlesticks testing period)

Efficiency NO DATA FALSE LOW MEDIUM HIGH
Number of
Occurrences
8 2,128 2,488 1,827 3,493
% of
Occurrences
0.08 % 21.32 % 25.02 % 18.37 % 35.21 %

 

Efficiency statistics (10 candlesticks testing period)

Efficiency NO DATA FALSE LOW MEDIUM HIGH
Number of
Occurrences
13 2,054 1,964 1,526 4,387
% of
Occurrences
0.13 % 20.53 % 19.75 % 15.35 % 44.24 %

 

10 top best performing symbols

Occurrences Statistics 5 candlesticks testing period
(HIGH efficiency)
10 candlesticks testing period
(HIGH efficiency)
Symbol Number of
Occurrences
Average
Frequency
Number of
Occurrences
% of
Occurrences
Number of
Occurrences
% of
Occurrences
AAPL 32 157.3 22 68.74 % 25 78.12 %
HRS 28 179.8 12 42.85 % 18 64.28 %
KSS 24 209.8 12 50.00 % 15 62.51 %
ADI 29 173.6 16 55.18 % 18 62.08 %
BWA 25 201.4 11 48.00 % 14 60.00 %
HON 29 173.6 15 51.73 % 17 58.63 %
XLNX 29 173.6 15 51.72 % 17 58.62 %
COP 29 173.6 16 55.17 % 17 58.62 %
NUE 31 162.4 16 51.61 % 18 58.06 %
CCE 26 193.6 14 53.85 % 15 57.70 %

 

10 top worst performing symbols

Occurrences Statistics 5 candlesticks testing period
(FALSE efficiency)
10 candlesticks testing period
(FALSE efficiency)
Symbol Number of
Occurrences
Average
Frequency
Number of
Occurrences
% of
Occurrences
Number of
Occurrences
% of
Occurrences
WDC 27 186.4 12 44.44 % 12 44.44 %
FOSL 24 209.7 10 41.67 % 10 41.67 %
VRTX 24 209.7 10 41.67 % 10 41.67 %
GLW 27 186.4 11 40.74 % 11 40.74 %
GPS 25 201.4 10 40.00 % 10 40.00 %
ORLY 26 193.6 10 38.46 % 10 38.46 %
TSCO 29 172.5 11 37.93 % 11 37.93 %
PVH 24 209.8 9 37.50 % 9 37.50 %
VLO 24 209.8 9 37.50 % 9 37.50 %
CHK 30 167.8 11 36.67 % 11 36.67 %
Pattern name: Hammer
Scanner settings: daily stocks
Group: S&P500
Number of symbols: 502
Date range: 7/1/2010 - 6/30/2015
Time interval: daily candles
Total number of candlesticks: 614,034
Number of occurrences (Hammer): 2,400
Number of occurrences (all candlestick patterns): 166,328
% of occurrences (Hammer): 1.44 %
Average frequency: 255.8
Efficiency statistics (5 candlesticks testing period)

Efficiency NO DATA FALSE LOW MEDIUM HIGH
Number of
Occurrences
8 385 730 531 746
% of
Occurrences
0.33 % 15.71 % 30.42 % 22.12 % 31.42 %

 

Efficiency statistics (10 candlesticks testing period)

Efficiency NO DATA FALSE LOW MEDIUM HIGH
Number of
Occurrences
13 357 539 449 1,042
% of
Occurrences
0.54 % 14.34 % 22.46 % 18.71 % 43.95 %

 

10 top best performing symbols

Occurrences Statistics 5 candlesticks testing period
(HIGH efficiency)
10 candlesticks testing period
(HIGH efficiency)
Symbol Number of
Occurrences
Average
Frequency
Number of
Occurrences
% of
Occurrences
Number of
Occurrences
% of
Occurrences
BWA 9 139.8 5 66.67 % 6 77.78 %
HAR 8 157.3 5 62.50 % 6 75.00 %
TIF 10 125.8 4 40.00 % 7 70.00 %
ETN 9 139.8 6 66.67 % 6 66.67 %
HSP 9 139.8 4 44.45 % 6 66.67 %
NBL 8 157.3 3 50.00 % 4 62.50 %
NLSN 8 139.1 3 37.50 % 5 62.50 %
WYNN 8 157.3 5 62.50 % 5 62.50 %
GM 10 116.0 6 60.00 % 6 60.00 %
NTAP 10 125.8 3 30.00 % 6 60.00 %

 

10 top worst performing symbols

Occurrences Statistics 5 candlesticks testing period
(FALSE efficiency)
10 candlesticks testing period
(FALSE efficiency)
Symbol Number of
Occurrences
Average
Frequency
Number of
Occurrences
% of
Occurrences
Number of
Occurrences
% of
Occurrences
PEG 8 157.3 4 50.00 % 4 50.00 %
CHK 8 157.3 3 37.50 % 3 37.50 %
MLM 8 157.3 3 37.50 % 3 37.50 %
CAT 9 139.8 3 33.33 % 3 33.33 %
DE 9 139.8 3 33.33 % 3 33.33 %
HIG 9 139.8 3 33.33 % 3 33.33 %
MPC 9 112.2 3 33.33 % 3 33.33 %
AEE 8 157.3 2 25.00 % 2 25.00 %
APD 8 157.3 2 25.00 % 2 25.00 %
BLL 8 157.3 2 25.00 % 2 25.00 %

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