What is a 'Golden Hammer'

Golden hammer is excessive dependence on a specific tool to perform many different functions. In investing it is when a trader depends on one particular analysis tool or viewpoint to make all decisions. Golden hammers also happen in the business world when a company uses a single demographic or analytics to make strategic decisions. For example, give a corporation’s management team a hammer, and everything around them appears to be a nail.

The golden hammer principle is also known as the law of the instrument or Maslow's hammer.

BREAKING DOWN 'Golden Hammer'

While the golden hammer term mainly applies to education, research, and scientific fields, it can also relate to an overdependence on a tried-and-true business strategy or investment approach. Using the golden hammer may reflect a bias toward the familiar. It also may be seen as a solution without refinement. The golden hammer may work, although a less-drastic approach may be more appropriate. 

Technical Analysis and Golden Hammers

The golden hammer should not be confused with a hammer in the field of technical analysis, a discipline that involves the study of past price charts to predict future prices. In this instance, a hammer is a single candlestick pattern with a long lower wick, a short body at the top, and with a little or upper wick. As a rule of thumb, the lower wick must be at least twice as long as the upper wick to be a hammer.

A hammer pattern can also coincide with so-called golden ratios, also known as the Fibonacci retracement levels of roughly 161.8%, or more commonly, its inverse, 61.8% When this happens, technical traders tend to view the hammer as a particularly strong signal that a stock price may reverse its prevailing trend.

However, this combined signal is not necessarily known as a golden hammer. Rather, it is simply a hammer pattern that takes place at a 0.618% golden retracement.

Golden Hammers in Gaming

Of note, the golden hammer has made its way into several successful video games, in which, it is a go-to weapon. For instance, a golden hammer appears in several titles in the Super Mario game family. While it works like a regular hammer to smash obstacles that might kill the player’s on-screen character, the golden hammer is more powerful and can allow the character to float in mid-air. Thus, accurate to the definition, it is a weapon for nearly all uses.

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