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The Hammer: Trapped Shorts, Tighter Stop

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Definition A hammer is a bar with a large lower wick whose body closes in the top 33% of its range. Sellers pushed price down and got completely rejected: an actionable signal of potentially trapped shorts.

A hammer is not a universal truth. Unlike the 1s, 2s, and 3s, trapped shorts cannot be known for certain, so use hammers in addition to other signals, not instead of them. Its edge is a tighter stop: at worst one penny under the entry bar’s low, never under the hammer’s wick.

The normal hammer

The structure is a 2-2 reversal: down bar, hammer (a 2d closing in the top third of its range), confirmation bar up. Trigger: the hammer’s high. Magnitude: the prior candle’s high.

Normal hammer: down bar, hammer with long lower wick and body in the top third, confirmation bar up Magnitude — prior candle’s high Trigger — hammer’s high Level of reclaim — the prior bar’s low Normal hammer — a 2-2 reversal with a rejection wick TheStrat.AI
The middle bar is the hammer: it took the prior low (a 2d), sellers got rejected, and the body closed in the top third of the range. The break of its high triggers the reversal; the target is the prior candle’s high, and the prior low the hammer took and closed back over is the level of reclaim. The stop goes one penny under the entry bar’s low.

The momo hammer

A momo hammer fires with the trend, ideally an aggressive one: 2u-2u(hammer)-2u-2u. Trigger: the break of the hammer’s high. Stop: spread plus a penny below the trigger, or the low of the entry bar. It is a continuation, so it has no magnitude. Target with a measured move: measure the leg before the pause, project it forward.

Momo hammer: an aggressive uptrend of 2u bars, a 2u hammer with the trend, then the break of the hammer’s high continues the move Trigger — the hammer’s high Stop — spread + 1¢ under the trigger, or the entry bar’s low 2u 2u hammer 2u — entry 2u Momo hammer — a hammer with the trend, momentum continues TheStrat.AI
Aggressive uptrend: 2u, a 2u hammer with the trend, then the break of the hammer’s high (the trigger), and momentum continues. Stop: spread plus a penny under the trigger, or the entry bar’s low. No magnitude; target with a measured move. Manage tightly: momos can fail fast as the bar closes.

Hammer-counter-shooter

A hammer immediately countered by a shooter is a named two-bar standoff: hammer-counter-shooter = 2-2. The mirror also holds. A hammer that immediately follows a shooter is treated as a momentum hammer: the counter blows out the trapped longs from the shooter and fuels violent resumption. These counters rank among the intraday signals to prioritize on the 30/60.

Execution rules

Entry: take the offer as soon as price is above the hammer’s high. Throw the first punch; posting a bid lets the other team shoot first. Stop: one penny under the entry bar’s low, not the hammer’s wick, which is way too low: it will have failed long before then. Same rule for the momo hammer. Target: the prior candle’s high (the normal hammer); the momo hammer has no magnitude, so use a measured move. Manage momos tightly: once everyone who wants in is in and the stops are blown out, they can fail fast as the bar closes. Full treatment: Types of Reversals.

Related: Shooter · 2-2 Reversal · Inside Bar
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TheStrat was developed by Rob Smith. These docs are written by Alex Sopa (AlexsOptions) and quote his teaching. Work in progress: spotted an error? Tell Alex.

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