Essential Candlestick Patterns in Crypto: How to Use the "Hammer" Pattern to Make Money?

Anyone who trades knows this: reading candlesticks is easy, trading is hard. Among technical analysis tools, the “hammer” pattern is one of the most frequently seen— a small green body with a long lower shadow, really looking like a hammer. But being able to spot it and being able to use it are two totally different things.

Why Pay Attention to the “Hammer” Pattern

What does the appearance of a “hammer” usually mean? Simply put, it means sellers pushed the price down hard, but buyers forcefully pulled it back up. The price once hit bottom, but ended up closing higher. This reflects that there’s buying power in the market— this is why many traders see it as a reversal signal.

But let’s be clear, it’s not 100% reliable. The “hammer” is just a signal; real trading decisions need to be combined with other indicators.

What Does a “Hammer” Look Like

It has three main features:

• Very small real body (opening and closing prices are very close)
• Extremely long lower shadow (at least twice the length of the body)
• Barely any upper shadow

The longer the lower shadow, the stronger the reversal signal. If the lower shadow is more than three times the body, the “hammer” is even more powerful.

Other Members of the “Hammer” Family

Not all hammer-like patterns are bullish signals:

Classic “Hammer” — Bullish. Small body + long lower shadow, indicating strong buying at the bottom.

“Inverted Hammer” — Also bullish, but weaker. The price was pushed up but there’s limited rebound space.

“Hanging Man” — Bearish. Long lower shadow + red body, showing sellers are still in control. Price tried to bounce but couldn’t hold.

“Shooting Star” — Also bearish. Price tried to go up, got pushed down, and closed below the opening price.

How to Use the “Hammer” to Make Money

Don’t rush to go all-in when you spot a “hammer” pattern. Here’s what you should do:

1. Confirm the Signal — Verify with other technical indicators (moving averages, RSI, MACD, etc.)
2. Check the Fundamentals — See if any news has triggered bottom fishing
3. Watch the Follow-up Trend — See if the next candlestick confirms the reversal
4. Set a Stop Loss — This is crucial, as the signal may fail

A common beginner’s mistake is trading solely based on the “hammer.” What happens? The price keeps dropping and accounts get liquidated.

Pros and Cons of the “Hammer”

Pros:

• Can be used in any market (crypto, stocks, forex)
• Very easy to recognize
• Works well with other technical analysis tools
• Can help judge reversals or trend continuation

Cons:

• Often gives false signals; price can keep falling
• Can’t be relied on alone for trading decisions
• May fail in extreme market conditions

Final Thoughts

The “hammer” pattern is one of the most basic and common tools in candlestick analysis. But basic doesn’t mean foolproof. The key is to recognize its limitations— it’s just one of many signals, not the holy grail.

With crypto’s huge volatility, no one can claim to be right 100% of the time. Always confirm with multiple indicators and always manage your risk. Thinking you’ll make quick money just because you see a “hammer” is usually the fastest way to lose it.