By Steve Nison, President of Candlecharts.com

One type of shadow of the candle line (i.e., the thin lines above and below the real body) is a specific type of candle line that has a very long lower shadow called a hammer -- so called because the Japanese will say the market is trying to "hammer" out a base. The criteria for the hammer are:

1. The real body is at the upper end of the trading range.
2. The color of the real body can be black or white.
3. It has a bullish long lower shadow that is at least twice the height of the real body.
4. It should have no, or a very short, upper shadow.

The hammer reflects the visual insights obtained from a candle chart. Specifically, the hammer's extended lower shadow shows that the market rejected lower price levels to close at, or near, the highs of the session. From my experience, most times when there is a hammer, the market may not immediately move up but may rally slightly or trade laterally. And, then, after expanding on a base, rally. If the market closes under the lows of the hammer, longs should be reconsidered.

In the attached intraday chart, I show two hammers at the same area (denoted by the arrow). These areas took on extra significance because there were two hammers at the same level and these dual hammers confirmed a support level shown by the dashed line.

Once again, we see how easy and powerful it is to combine the insights of candle charts (the hammers) with classic western trading signals (the support line) to signal the likelihood of a market turn.