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.

RELATED TERMS
  1. Hammer

    A Hammer is a price pattern in candlestick charting that occurs ...
  2. Golden Cross

    The golden cross is a candlestick pattern that is a bullish signal ...
  3. Golden Bungee

    A benefit conferred to select top executives that is a combination ...
  4. Golden Handcuffs

    Golden handcuffs are a collection of financial incentives that ...
  5. Puke

    Puke is a slang term describing the sale of a security or other ...
  6. Fibonacci Numbers/Lines

    The Fibonacci numbers and lines are technical indicators using ...
Related Articles
  1. Trading

    Why A Falling Stock Is Not Always A Bargain

    Learn how to successfully trade pullbacks and to avoid being crushed by "falling safes."
  2. Investing

    Streaming Companies Won 5 out of the 11 Golden Globes for Television

    Hulu is the first company to take home both the Golden Globe and Emmy Award for best drama series in its debut season in over five years.
  3. Trading

    Fibonacci and the Golden Ratio

    Discover how the amazing ratio, revealed in countless proportions throughout nature, applies to financial markets.
  4. Investing

    5 Stocks To Ride The Hottest Tech Trends: Wick

    Respected tech investor Paul Wick sees huge upside potential for these stocks over the next few years.
  5. Investing

    Equity Returns: Key Drivers Over the Past 30 Years

    Equities enjoyed robust gains between 1985 and 2014, but a 2016 McKinsey report warned that these returns could soon deteriorate significantly.
  6. Trading

    Positive Earnings Appears To Be Priced In For United Parcel Service

    United Parcel Service Inc. is above a ‘golden cross’ on its daily chart with a positive but overbought weekly chart, which indicates that a positive reaction to earnings may be priced-in.
  7. Investing

    The Worst Performing Stocks on U.S. Exchanges in 2016

    Valeant plummeted by more than 80%. Here's a list of the worst performing stocks listed on the NYSE and the NASDAQ.
  8. Investing

    GE’s Breakout May Send Shares 15% Higher

    Based on technical analysis, shares of GE could rally about 15% from its current price of $15. 
  9. Investing

    25 Investments You Should Know

    Here we tell you about the diverse features and advantages of 25 different financial instruments.
  10. Trading

    Dick's Sporting Goods Reports in Recovery Mode

    Dick's Sporting Goods has a favorable P/E ratio of 11.69, a solid dividend yield of 2.50% and is above a "golden cross" with a positive weekly chart.
RELATED FAQS
  1. How is minimum transfer price calculated?

    Discover how to calculate the minimum transfer price for goods and materials that have been transferred between multiple ... Read Answer >>
  2. How are Shooting Star patterns interpret by analysts and traders?

    Learn what the shooting star candlestick formation is and the reasons traders and market analysts commonly interpret it as ... Read Answer >>
  3. What is Fibonacci retracement, and where do its ratios come from?

    A Fibonacci retracement is a popular tool that can be used to identify support and resistance levels, and place stop-loss ... Read Answer >>
  4. What are the most common strategies to place retracement levels?

    Find out how traders place Fibonacci retracement levels, and learn what it means when a price retracement seems to reverse ... Read Answer >>
Trading Center