# Hammer

**TA-02e · Technical Analysis · Core**

**Lesson question:** How do you recognize hammer without treating it as an automatic entry?

Original fictional examples; educational writing, not live market data, orders or production approval.

## By the end

- Read the exact candle geometry.
- Identify prior context.
- State a confirming and an invalidating branch.

**Prerequisites:** TA-01, TA-02

A hammer places a relatively small real body near the top of its range and a long lower shadow below it. It records an excursion to lower prices followed by recovery. The preceding decline and location distinguish a useful hypothesis from a shape found at random.

## Put location before the name

The fictional setup occurs after a downswing into a premarked lower-price area. That reference must be known before identifying the signal; otherwise a trader can invent convenient support or resistance afterward. Match the pattern's timeframe with the context timeframe and state when the bars finish.

The illustration is an original teaching sequence, not an alert, backtest or historical probability. The user's candle panel supplies the syllabus, not a specification for automated trading thresholds.

## Read the geometry

The body is 0.50, lower wick 3.00 and upper wick 0.20. Lower wick divided by body equals six. This explicit ratio makes the geometry easy to study; it is not a claimed six-to-one profitable detection rule. Hammer conventions do not universally require a green body.

## Walk both next-bar branches

A confirming branch for this particular process is a move above 100.70 that holds rather than immediately fading. An invalidating branch is a subsequent close below the hammer low at 97. Write both before watching the next interval. Confirmation is additional evidence, not certainty; failure means the original premise needs reassessment.

Even a visually confirmed pattern can offer poor execution economics. Check the next obstacle, spread, available liquidity and consequence of a failed entry. A bullish candle does not automatically justify buying an expensive call, and a bearish one does not justify uncovered short calls.

## Read the completed bars

Use these exact data: bar 1: open 100.00, high 100.70, low 97.00, close 100.50. Begin with open and close, then inspect the shadows. Compare completed intervals; do not assume a particular high–low order within one interval.

The body is 0.50, lower wick 3.00 and upper wick 0.20. Lower wick divided by body equals six. This explicit ratio makes the geometry easy to study; it is not a claimed six-to-one profitable detection rule. Hammer conventions do not universally require a green body.

Now rehearse the favorable and adverse branches above. Explain what would change your confidence without changing the already-completed candle. The chart and popup use this same OHLC sequence, so the lesson can be reproduced numerically rather than memorized from a decorative drawing.

## Calculation popup: Candle measurements

```text
Body=|C−O|; upper=H−max(O,C); lower=min(O,C)−L
```

These are measurements, not probability estimates.

1. Bar 1: body 0.50; upper wick 0.20; lower wick 3.00.

**Result:** Six: (100−97)/|100.50−100|.

## Graph: Hammer—fictional completed intervals

**Horizontal:** Completed interval  
**Vertical:** USD per share

Prior context: a downswing into a premarked lower-price area. The data table preserves every open, high, low and close. Intrabar high/low order is not known from these bars.

Complete numerical data are embedded in `scripts/technical-analysis/TA-02e.js` and displayed as an accessible table in the HTML lesson.

| Bar | Open | High | Low | Close |

|---:|---:|---:|---:|---:|

| 1 | 100 | 100.7 | 97 | 100.5 |

## The named shape is not a guarantee

The adverse branch is a subsequent close below the hammer low at 97. Maintaining the original label does not restore the premise. A similar-looking candle in the middle of overlapping range trade may have much less useful context.

Another failure is hindsight selection: locating only successful examples after seeing their outcomes. A usable process needs stated definitions, transaction costs and out-of-sample evaluation before any claimed edge.

## Check your understanding

### What is the lower-wick-to-body ratio?

**Answer:** Six: (100−97)/|100.50−100|.

**Why:** Calculate from the supplied OHLC, then distinguish geometry from the uncertain future.

### Does this pattern establish a profitable options entry?

**Answer:** No.

**Why:** Instrument price, time, liquidity and the loss scenario must also be evaluated. **Critical risk check.**

## Takeaway

Recognize the hammer, locate it, and explain both confirmation and failure before discussing a trade.

## References and provenance

The cited references support definitions and conventions. The teaching prose, tickets and numerical scenarios are original; they are not attributed as historical market observations.

- [Fidelity Chart Patterns Reference](https://www.fidelity.com/quick-content/etf/help/research/learn_er_quotes.shtml)