The Hammer Pattern Indicator is a candlestick-based tool designed to identify bullish hammer patterns within a downtrend, signaling potential trend reversals and buying opportunities. It operates by first confirming a downtrend, where the current candle’s closing price is lower than the close three bars prior. It then validates the hammer candlestick structure by checking that the candle has a small body (≤ 30% of the total range), a long lower shadow (at least twice the body size), and a short upper shadow (≤ 30% of the body size). When these conditions are met, the indicator plots a colored dot slightly below the low of the hammer candle to visually confirm a potential reversal.

Key features include filtering out weak signals by requiring a prior downtrend, customizable parameters for body size, shadow length, and signal colors, and a straightforward approach suitable for swing traders and price action traders. For enhanced reliability, it is recommended to confirm signals with additional indicators such as volume or support levels. This indicator focuses on providing clear visual cues to assist traders in identifying possible bullish reversals based on price action patterns.