EOD High volume bullish hammer candle....

[Trend Fader]

Just got off the phone with a top NYC trader.. and we discussed different trading techniques. I thought I would share this idea with all the swing traders on ET.

He was telling me one of his favorite long patterns and trade setups as an EOD swing trader.. and he claims thoughout the years its made him a bundle. I am sure many other traders use this pattern but I was amazed at the success he had from it alone.

He only trades daily bars... and waits for a stock to drop with a series of consecutive lower lows (expansion lows). Then he waits for the bullish hammer which needs to close positive for the day and atleast above %75 in the upper daily range. Volume must be atleast 1.5x the avg volume ( he prefers 2x avg volume). The low of the hammer should also be a fresh low in order to get a good shakeout. He enters at the close.

As for exit.. starts off with a stop under the hammer low then he trails it with a 2 or3 bar low (discretionary based on volatility), and scales out if the stock becomes parabolic because a 2 or 3 bar low would take away too much of the profit in that case.

A good example would be IFIN on 9/30/02.

Just curious if anyone here swing trades a similar setup and how they are doing?



--MIKE

 

[jammy]

Sorry if this is a stupid question, but what exactly did you mean by "atleast above %75 in the upper daily range"? Thanks

 

[CWU]

Hello Trend Fader,

Thanks for that post. Anything that has to do with EOD is of interest to me.

That's a very interesting pattern.

I created a quick scan of the S&P500. For the lower lows I simply required that in the previous 8 days there had to be at least two lower lows at any one time. Does he require two, or three?

I used a 50 dma of volume at 1.5. Is he using the 50 dma?

Anyway, tonight's scan came up with: HD, S, COST, SEBL, TROW, LIZ and TIF. Please take a peek and see if that's the basic idea.

If so, or with a modification to the number of lows and volume requirement, then I'll do some backtesting with it.

Thanks for this. Much appreciated.

Chuck

 

[Trend Fader]

Originally posted by jammy
Sorry if this is a stupid question, but what exactly did you mean by "atleast above %75 in the upper daily range"? Thanks

Means the close of the day is greater than 75% of the daily range. If the high is 100 and low is 50 the close must be at least 87.5.


-MIKE

 

[Gordon Gekko]

Originally posted by Trend Fader
He only trades daily bars... and waits for a stock to drop with a series of consecutive lower lows (expansion lows). Then he waits for the bullish hammer...

mike,

thanks for sharing. when you say he waits for a series of consecutive lows and waits for the hammer, does the hammer need to come right after the consecutive lows? i ask because in the example you gave (IFIN 9/30), the hammer day itself was the first lower low. a few days prior to that, there were some consecutive lower lows, but the hammer did not immediately follow.

 

[Trend Fader]

Originally posted by Gordon Gekko

mike,

thanks for sharing. when you say he waits for a series of consecutive lows and waits for the hammer, does the hammer need to come right after the consecutive lows? i ask because in the example you gave (IFIN 9/30), the hammer day itself was the first lower low. a few days prior to that, there were some consecutive lower lows, but the hammer did not immediately follow.

Honestly, I dont know. Perhaps we can backtest several variations of this pattern and see how it does. My hunch tells me it would work 60% of the time.. with an impressive risk/reward.

You can modify this idea in many ways. For example, stock needs to be above 200day MA or 50day MA. Need a very sharp decline before going short. The hammer low needs to be a 5, 10, or 20 day low.....

I think the key is entering at the close as opposed to entering the day after... because those gap ups will make you the big $at the end.. and if you enter the next day you will miss the entry or chase the stock.


--MIKE