Quote from IronFist:
I was just paper trading today (I'm on PTO all week from my job). Take a look at my pic. At the first arrow, I would have bought. It was a hammer after a downtrend after a gap down. The stock went up nicely after that.
But, look at the second arrow. Is that not a huge short pattern? A big, inverted hammer after an uptrend? Cover up everything to the right of that candlestick with your hand and tell me if you would have gone long or short there.
pic:
http://img.photobucket.com/albums/v326/ironfistx/untitled.jpg
You should read my thread here at ET called
Trading Hammers (revisited) that talks about what works and what doesn't work involving Hammers.
http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880
Simply, that inverted hammer or shooting star in your chart is a poor short signal and such is discussed in the Hammers thread.
It also backtest poorly along with having a very difficult trade management after entry.
You can also do a search here at ET about what I've said about Shooting Stars especially my comments about how traders misinterpret the ones like the ones in your chart as short signals.
http://www.elitetrader.com/vb/search.php?s=
In other words, there are different types (sub-groups) of Shooting Stars or Inverted Hammers and the one particular type in your chart example does not merit a short position because it is an
exhaustion signal and not a trend reversal signal.
Another way to look at it...exhaustion signals are very dynamic.
They can be used for counter-trend trading (not recommended) for those that do early entries before confirmation or used as continuation signals for those wanting to trade with the trend because prices will move towards the long shadow peak and possibly beyond if
volatility doesn't decline too much.
Quote from IronFist:
So my second arrow would normally be interpreted by most people as a sell signal?
Most people I know that are very experience with Japanese Candlestick patterns do not see that as a short signal.
Quote from IronFist:
...As for only using candlesticks, I thought I'd read here that all the successful people really only trade off of volume, price, and maybe candle formations, and they don't really use any indicators or anything.
What you've read is either incorrect or something that was written can be easily misinterpreted.
Yes, most profitable traders I know are price action only (no indicators) traders.
Yes, most of them are using candlestick charts instead of bar charts.
However, most are not using Japanese Candlestick Analysis as part of their methodology as price action only traders.
They just like candlestick charts because it looks prettier than bar charts.
Simply, don't get candlestick
charts mixed up with candlestick patterns.
Thus, just because you see a chart in candlesticks doesn't imply its someone using candlestick pattern analysis.
P.S. Shooting Stars or Inverted Hammers need confirmation...without that confirmation, you'll be throwing money in the fire.
Your first arrow (dark hammer) is also a poor signal that needed confirmation...which it got two intervals later (preferably within 1-2 intervals after a dark hammer).
Mark
(a.k.a.
NihabaAshi) Japanese Candlestick term
