Hammer

In financial markets, certain configurations signal a potential reversal after a prolonged price decline. One such formation is the hammer — a short-term pattern that often indicates a loss of selling pressure and a possible start of upward movement. Shape analysis: A hammer is characterized by a small real body and a long lower shadow that is at least twice the size of the body. The upper shadow is short or absent. This structure reflects that sellers pushed the price down during the period, but buyers managed to bring it back up — a sign of a possible reversal. Previous trend check: The pattern is meaningful only after a downward trend. By analyzing several prior periods, if a persistent decline is observed, the appearance of a hammer may suggest a trend change. Local slope assessment: The short-term moving average slope is examined. A negative slope confirms that the hammer forms in a declining context rather than a sideways or rising market. Effectiveness confirmation: After the hammer appears, subsequent price movement is evaluated — if the price rises in the following periods, the signal is considered confirmed. Statistical evaluation: For all detected signals, the share of confirmed, false, and undetermined cases is calculated. This helps assess the reliability and practical usefulness of the pattern. Overall, the hammer pattern represents a moment of market indecision where sellers lose dominance and buyers regain control. Combining candlestick shape analysis with trend and post-signal movement evaluation allows systematic detection of potential upward reversals.