The Hammer candlestick is a subset of the Spinning Top candlestick, which we covered here. A Hammer candlestick's body can be either black (red) or white (green) in color and is usually small in stature. The small candlestick body signifies the stock's opening price, and the closing price of the stock was close in value. The Hammer candlestick has little to no upper wick or shadow and has a very long lower wick or shadow, usually two to three times the size of the candlestick's body formation.
This represents the price of the stock dropping lower after it opened. However, the candlestick's body's size is smaller than an average candlestick and reflects the failure of the bear's price drop to hold its ground, and in response, the bulls pushed the price back up again.
Hammer candlesticks are found at the bottom of a downswing or bearish trend and are a strong bullish reversal signal. They are a sign the market is finding the bottom of its current move and looking to reverse course. Thus, if the next candlestick's price action is up and confirms the reversal signal, you might want to apply a little technical analysis to see if a long trade is right for you and your trading plan.