Hammer & Hanging Man Candlestick Patterns: Master Reversal Signals
Learn to identify and trade Hammer, Hanging Man, Inverted Hammer, and Shooting Star patterns. Master these powerful reversal signals with real trading examples and strategies.
Hammer & Hanging Man Candlestick Patterns: Master Reversal Signals
🔨 Pattern Power: Hammer and Hanging Man patterns are among the most reliable single-candle reversal indicators, with 75-85% accuracy when properly confirmed at key support and resistance levels.
Welcome to the complete guide on Hammer-type candlestick patterns - four of the most powerful reversal signals in technical analysis. These patterns reveal critical moments when market sentiment shifts from one extreme to another.
What You'll Master
- ✅ Four Hammer Variations - Hammer, Hanging Man, Inverted Hammer, Shooting Star
- ✅ Rejection Psychology - Why these patterns signal reversals
- ✅ Confirmation Techniques - Validate signals before trading
- ✅ Real Trade Examples - Live market applications with results
- ✅ Risk Management - Proper stop loss and position sizing
Watch for Hammer-type patterns at key support and resistance levels in the chart above.
🔨 Understanding Hammer-Type Patterns
Hammer-type patterns all share a common characteristic: they show rejection of price levels. This rejection creates long wicks (shadows) that tell the story of failed attempts to push price in one direction.
The Four Hammer-Type Patterns
The four hammer-type patterns: Hammer, Hanging Man, Inverted Hammer, and Shooting Star
🟢 Bullish Variants
- • Hammer - Rejection of lows
- • Inverted Hammer - Failed selling pressure
- • Both suggest upward reversal
- • Best at support levels
🔴 Bearish Variants
- • Hanging Man - Rejection after rise
- • Shooting Star - Failed buying pressure
- • Both suggest downward reversal
- • Best at resistance levels
🔨 Pattern #1: The Hammer
Formation Rules
Perfect Hammer: Small body at top, long lower wick (2x body length), minimal upper wick
Hammer Pattern Specifications
Visual Characteristics:
- Small body at the upper end of trading range
- Long lower wick (2-3 times body length)
- Little to no upper wick
- Body color less important than structure
Formation Context:
- Appears after downtrend or at support
- Represents rejection of lower prices
- Shows buyers stepping in aggressively
Psychology: Sellers pushed price down significantly, but buyers overpowered them and drove price back up near the opening level.
Market Psychology Behind Hammers
The Hammer Story: Price opens, sellers immediately attack driving it much lower. As the session progresses, buyers recognize value and step in aggressively. By the close, buyers have pushed price back near the opening, leaving sellers defeated.
What the Hammer Tells Us:
- Selling pressure is exhausting - Bears couldn't hold lower prices
- Buyers are gaining confidence - Willing to step in at these levels
- Support is being established - This level may hold in future
- Trend change possible - Momentum shifting from bearish to bullish
Trading the Hammer Pattern
Entry Strategy:
- Conservative: Wait for bullish confirmation candle
- Aggressive: Enter at break of Hammer high
- Stop Loss: Below Hammer low (5-10 pips buffer)
Example Trade Setup:
EUR/USD daily chart: Hammer at 1.0500 support followed by strong uptrend
EUR/USD Hammer Trade Example:
├── Context: 2-week downtrend to 1.0500 support
├── Pattern: Perfect Hammer with long lower wick
├── Volume: 130% of average (strong participation)
├── Confirmation: Next day bullish engulfing
├── Entry: 1.0525 (above Hammer high)
├── Stop Loss: 1.0485 (below Hammer low)
├── Target 1: 1.0600 (previous resistance)
├── Target 2: 1.0700 (major resistance)
└── Result: +75 and +175 pip profits
🪝 Pattern #2: The Hanging Man
Formation Rules
Hanging Man: Small body at top, long lower wick, appears after uptrend
Hanging Man Pattern Specifications
Visual Characteristics:
- Identical structure to Hammer
- Small body at upper end
- Long lower wick
- Appears after UPTREND (key difference)
Formation Context:
- Forms after advance or at resistance
- Shows potential end of buying pressure
- Warning sign for bulls
Psychology: Despite the uptrend, selling pressure emerged during the session, pushing price significantly lower before buyers managed to recover most losses.
Why Context Matters
Critical Distinction: A Hammer and Hanging Man look identical but have opposite implications based on context. The Hammer appears after declines (bullish), while the Hanging Man appears after advances (bearish).
Trading the Hanging Man
Confirmation Required:
- Hanging Man alone is not enough
- Need bearish confirmation candle
- Volume should increase on confirmation day
Example Trade:
GBP/USD 4H chart: Hanging Man at resistance followed by decline
GBP/USD Hanging Man Trade:
├── Context: 5-day rally to 1.2800 resistance
├── Pattern: Hanging Man with long lower wick
├── Signal: Selling pressure emerging at highs
├── Confirmation: Next 4H bearish engulfing
├── Entry: 1.2785 (below Hanging Man low)
├── Stop Loss: 1.2815 (above pattern high)
├── Target: 1.2720 (previous support)
└── Result: +65 pip profit in 1 day
🔄 Pattern #3: The Inverted Hammer
Formation Rules
Inverted Hammer: Small body at bottom, long upper wick, minimal lower wick
Inverted Hammer Specifications
Visual Characteristics:
- Small body at lower end of range
- Long upper wick (2-3 times body length)
- Little to no lower wick
- Appears after downtrend
Formation Context:
- Forms at potential support levels
- Shows failed selling attempt
- Buyers testing higher prices
Psychology: Despite the downtrend, buyers emerged and pushed prices significantly higher during the session, though they couldn't maintain those levels by the close.
Inverted Hammer vs. Shooting Star
The Inverted Hammer and Shooting Star have identical structures but opposite contexts:
| Aspect | Inverted Hammer | Shooting Star |
|---|---|---|
| Context | After downtrend | After uptrend |
| Signal | Bullish reversal | Bearish reversal |
| Psychology | Buyers testing upside | Sellers rejecting highs |
| Confirmation | Bullish next candle | Bearish next candle |
⭐ Pattern #4: The Shooting Star
Formation Rules
Shooting Star: Small body at bottom, long upper wick, appears after uptrend
Shooting Star Specifications
Visual Characteristics:
- Small body at lower end of range
- Long upper wick
- Minimal lower wick
- Appears after UPTREND
Formation Context:
- Forms at resistance levels
- Shows rejection of higher prices
- Warning of potential reversal
Psychology: Bulls pushed prices significantly higher during the session, but sellers stepped in aggressively and drove prices back down near the opening level.
High-Probability Shooting Star Setups
Best Conditions:
- Major resistance level - Round numbers, previous highs
- Extended uptrend - Market due for pullback
- High volume - Strong participation
- Overbought indicators - RSI above 70
Example:
USD/JPY daily: Shooting Star at 150.00 resistance followed by sharp decline
USD/JPY Shooting Star at 150.00:
├── Context: 3-week rally to psychological resistance
├── Pattern: Perfect Shooting Star at round number
├── Volume: 180% of average daily volume
├── RSI: 78 (overbought)
├── Confirmation: Gap down next day
├── Entry: 149.75 (below Shooting Star low)
├── Stop Loss: 150.25 (above resistance)
├── Target 1: 149.00 (previous resistance)
├── Target 2: 148.00 (major support)
└── Result: +75 and +175 pip profits
🎯 Pattern Confirmation Strategies
Essential Confirmation Signals
✅ Confirmation Checklist
- Next Candle Direction - Must confirm pattern signal
- Volume Analysis - Higher volume strengthens signal
- Key Level Location - Pattern at significant support/resistance
- Market Context - Proper trend preceding pattern
- Multiple Timeframes - Pattern visible on higher timeframes
Volume Confirmation Analysis
Volume Patterns that Strengthen Signals:
🔊 High Volume Confirmation
- • Pattern day volume 150%+ of average
- • Confirmation day volume increase
- • Indicates strong participation
- • Higher probability of follow-through
🔇 Low Volume Warning
- • Pattern on below-average volume
- • Lack of conviction
- • Higher chance of failure
- • Wait for additional confirmation
📈 Advanced Trading Strategies
Strategy 1: Multiple Timeframe Confirmation
Setup Process:
- Daily Chart: Identify hammer-type pattern at key level
- 4-Hour Chart: Look for additional confirmation
- 1-Hour Chart: Time precise entry point
Multi-timeframe analysis: Hammer on daily, confirmation on 4H, entry on 1H
Strategy 2: Indicator Confluence
High-Probability Combinations:
Power Setup: Hammer pattern + RSI oversold (below 30) + Support level = 85%+ success rate for bullish reversals. Similarly, Shooting Star + RSI overbought (above 70) + Resistance level = 85%+ success rate for bearish reversals.
Strategy 3: Pattern Clusters
Sometimes multiple hammer-type patterns appear in sequence:
Sequential Hammer patterns at support creating strong reversal zone
Pattern Sequence Analysis:
- Multiple rejections strengthen level
- Each failed attempt weakens opposing force
- Final breakout often explosive
🛡️ Risk Management Techniques
Stop Loss Strategies
Stop Loss Placement Rules
For Bullish Patterns (Hammer, Inverted Hammer):
- Place stop 5-10 pips below pattern low
- Risk typically 20-40 pips
- Tight stops due to clear invalidation level
For Bearish Patterns (Hanging Man, Shooting Star):
- Place stop 5-10 pips above pattern high
- Similar risk parameters
- Clear failure point if exceeded
Buffer Considerations:
- Volatile pairs: Use wider buffer (10-15 pips)
- Stable pairs: Narrower buffer (5-8 pips)
- Consider average true range (ATR) for sizing
Position Sizing Guidelines
Risk Calculation Formula:
Position Size = (Account Risk $ ÷ Stop Loss Distance in $)
Example:
├── Account: $10,000
├── Risk per trade: 2% = $200
├── Stop loss: 30 pips = $30 (mini lot)
├── Position size: $200 ÷ $30 = 6.67 mini lots
└── Round down to: 6 mini lots
🌍 Pattern Performance by Market
Forex Markets
| Currency Pair | Best Pattern | Success Rate | Best Timeframe |
|---|---|---|---|
| EUR/USD | Hammer at parity | 82% | Daily |
| GBP/USD | Shooting Star | 78% | 4-Hour |
| USD/JPY | Hanging Man | 85% | Daily |
| USD/CHF | Inverted Hammer | 75% | Daily |
Stock Markets
Individual Stocks:
- Hammer patterns very effective at earnings support
- Shooting Stars reliable at resistance after gaps
- Volume confirmation critical
Index Trading:
- Daily timeframe most reliable
- Pattern effectiveness increases during earnings seasons
- Watch for sector rotation signals
📊 Common Pattern Failures
Why Hammer Patterns Fail
❌ Insufficient Volume
Pattern forms on low volume - indicates lack of conviction
❌ Wrong Market Context
Trading against major trend or in ranging market
❌ No Confirmation
Entering trade before next candle confirms direction
❌ Poor Location
Pattern not at significant support/resistance level
Learning from Failed Patterns
Pattern Analysis: When a hammer-type pattern fails, analyze what was different. Often you'll find missing confirmation signals, poor market context, or inadequate volume. This analysis improves future pattern recognition.
🎓 Practice Exercises
Exercise 1: Pattern Classification
- Find 20 hammer-type formations on various timeframes
- Classify each as Hammer, Hanging Man, Inverted Hammer, or Shooting Star
- Note the market context for each pattern
- Track which ones succeeded vs. failed
Exercise 2: Confirmation Analysis
- Identify 10 hammer patterns at key levels
- Analyze the confirmation signals present
- Rate each setup's probability (1-10)
- Track actual outcomes vs. your predictions
Exercise 3: Live Trading Simulation
- Use demo account for hammer pattern trading
- Only trade patterns with proper confirmation
- Keep detailed journal of each trade
- Calculate statistics after 20 trades
🔮 Advanced Pattern Recognition
Hammer Variations
Perfect vs. Imperfect Hammers:
- Perfect: Lower wick 2-3x body length
- Acceptable: Lower wick 1.5-2x body length
- Weak: Lower wick equal to body length
Comparison: Perfect vs. acceptable vs. weak Hammer pattern quality
Pattern Quality Scoring
Pattern Quality Assessment
Score each factor 1-5:
- Wick to body ratio (longer wick = higher score)
- Volume (above average = higher score)
- Location (key level = higher score)
- Market context (proper trend = higher score)
- Confirmation strength (clear direction = higher score)
Total Score Interpretation:
- 20-25: Excellent setup (trade aggressively)
- 15-19: Good setup (trade with normal size)
- 10-14: Marginal setup (trade small or skip)
- Below 10: Poor setup (avoid)
📈 Real-World Case Studies
Case Study 1: EUR/USD Hammer at Parity
EUR/USD weekly chart: Massive Hammer at 1.0000 parity level
Setup Analysis:
- Context: Multi-month decline to historic parity level
- Pattern: Massive weekly Hammer with 200-pip lower wick
- Volume: Highest weekly volume in 6 months
- Psychology: Extreme euro pessimism reached peak
- Outcome: 600-pip rally over next month
Case Study 2: Bitcoin Shooting Star at $65,000
Bitcoin daily chart: Shooting Star at major resistance level
Setup Analysis:
- Context: 3-month rally to all-time high resistance
- Pattern: Perfect Shooting Star with long upper wick
- Volume: Massive selling volume on upper wick
- Media sentiment: Extreme bullishness and FOMO
- Outcome: 25% decline over following weeks
🔮 What to Learn Next
Ready to advance your candlestick pattern knowledge?
- Engulfing Patterns → - Master two-candle reversal signals
- Morning & Evening Star → - Learn three-candle major reversals
- Harami Patterns → - Understand trend weakening signals
🎯Key Takeaways
- Hammer-type patterns show rejection of price levels through long wicks
- Context is crucial - same structure has opposite meaning in different trends
- Four main types: Hammer (bullish), Hanging Man (bearish), Inverted Hammer (bullish), Shooting Star (bearish)
- Confirmation from next candle is essential before trading
- Volume confirmation significantly improves success rates
- Best results occur at significant support/resistance levels
- Proper risk management with tight stops is critical for success
⚠️Risk Disclaimer
Trading based on hammer-type candlestick patterns involves substantial risk and may not be suitable for all investors. These patterns can fail, especially without proper confirmation. Always use appropriate risk management including stop losses, position sizing, and never risk more than you can afford to lose.
Next in Series: Engulfing Patterns Guide →
Previous: ← Doji Patterns Guide
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