Mark the low, trust it, leave on a close below

You trade a hammer by treating its low as support. Buy while price holds above that low, and get out once a candle closes below it. The shape tells you buyers pushed back. The low tells you where.

The first failure is trading the shape alone. A hammer printed in the middle of a rally is just a candle with a long lower wick. A bullish reversal needs something to reverse, so the decline has to come first. If you can't point to the fall the hammer ended, there's nothing to trade.

The second failure is the exit. Price can dip through the hammer's low and recover inside the same candle. A tight resting stop under the wick turns a good trade into a small loss.

The steps below fix both. They work on shares and on options, though options add a clock, covered near the end.

A hammer is one candle. Its lower shadow is at least twice the length of its body, and there's little or no shadow on top.

Measure it rather than eyeballing it. Say a 1-hour candle opens at 41.90, trades up to 42.10, dips to 41.20 and closes at 42.05. The body is 0.15. The lower shadow runs from 41.90 down to 41.20, which is 0.70. That's more than four times the body, so it passes.

There's no fixed number for how small the upper shadow must be. That part is judgment. Here it's 0.05, a sliver, which is fine. If the upper shadow is about as long as the body, call the candle something else and move on.

Then check the trend before the candle. Price should have been falling into it. The same shape after a rise doesn't count as a hammer at all.

Support goes at the hammer's lowest point, the tip of the lower wick. Skip the body and the close. In the example, that's 41.20.

The wick tip is the furthest point sellers reached before buyers took over. Drawing the line at the body leaves the real level unmarked below you. Your stop then ends up in the wrong place.

Draw it on the daily, 4-hour or 1-hour chart. Hammers on a 5-minute chart are easy to spot, but levels drawn there pile up and clutter the map.

It helps when the hammer lands on a level you'd already drawn. Two separate reasons for the same price raise your confidence. A hammer floating in open space, far from any earlier level, deserves smaller size or a pass.

The same logic holds on a daily chart, with bigger numbers. The stop distance grows, so the size has to shrink to keep the dollar risk the same.

Once the hammer closes, the trade is on while price stays above 41.20. Don't wait for two or three green candles to confirm it. Each one moves your entry further from the stop.

Find the target first. Say the next resistance level up sits at 43.60. Your stop is a close below 41.20, so risk is entry minus 41.20 and reward is 43.60 minus entry.

Call the entry E. For a two to one trade, 43.60 minus E must be at least 2 times (E minus 41.20). Rearranged, 3E must be at most 126.00, so E is at most 42.00. Above 42.00 the trade no longer pays two to one.

Mark 42.00 on the chart. If price runs past it before you're in, the setup is gone. Let it go and wait for the next one.

Size comes from the same distance. Enter at 42.00 and the stop sits 0.80 away. If you're willing to lose 120 dollars on the trade, that's 150 shares.

Stay in until a candle closes below 41.20 on the chart you're trading. A wick that pokes to 41.05 and snaps back doesn't count as an exit.

A close rule has a practical gap. A resting stop order fires on any touch, wick or not. So either watch the chart at each candle close, or place a backup stop further below for disasters only.

On shares, time is on your side, and a hammer can take hours to work. Options are different. Decay eats premium while you wait. With same-day contracts, one rule of thumb applies. If nothing breaks your way by the fifth candle of the entry chart, get out.

After the exit, write down whether you left on a close or a wick. That one line shows whether you followed the rule. Over a month, those lines tell you whether wicks or closes are deciding your exits.

Ten checks, in order, before and during the trade.