What it means
The lower wick should be at least twice the body. It matters most at a support level or after a liquidity sweep.
In practice
A hammer shows sellers pushing price down during the period and buyers taking all of it back before the close. Traders watch for it where a bounce would make sense anyway: at support, at a demand area or just after a low has been swept.
A common plan is to enter above the hammer's high once the next candle confirms, with the stop below the wick's low.
What to watch for
The same shape in the middle of a downtrend, away from any level, is often just a pause before the next leg down. Waiting for the following candle to close higher filters out many of these.
Related terms
3 terms- Shooting starA small body near the bottom with a long upper wick, after a rally: higher prices were rejected.
- Rejection blockThe long wick at a swing point, from the wick's extreme to the body; a propulsion block is an order block formed on top of an older one.
- SupportA price area where falling prices have stopped before, because buyers stepped in.