Hammer is one of the Candlestick Bullish reversal pattern. Hammer is made up of just one candlestick. The candle body will exactly look like hammer, as it has long lower wick and a short body at the top with little or no wick. Hammer candlestick pattern is valid only when the size of the candle shadow is at least twice the size of the candle head.
When the Hammer forms in the downtrend there is a potential possible trend reversal. The asset has made new recent low, but it is managed to close just above or below the opening price. That shows the strength of the buyers than sellers. Traders can go long after seeing next day's opening price, if the price opened above the Hammer's close then definitely buyers are in control. The stop loss has to be placed at the lower end of the Hammer.
Traders have to consider two addition things in mind before initializing the trade. The significance of the Hammer shadow and the volume of the Hammer.
Hammer occurring on the top will be called as Hanging Man.