Trading Hammers (revisited)

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Quote from sunnyskies:

The problem with ZN05.. is.. pt1 is much smaller than your stop loss would be if it was hit. times smaller, maybe 2 times smaller, maybe 3. you need to hit multiple pt1 wins to compensate for one losses' hit. I've found that to be THE problem in my application if your trade management style.
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Hi sunnyskies,

First of all, I don't know what pt1 is going to be when I enter a trade.

Your post implies your using some sort'uv risk:reward measured against where you normally place your stops.

Further, I don't know what pt2, pt3, pt4, pt5 et cetera is going to be.

Reason is because I'm trading the current price action...

Taking whatever the market can give me via using WRB Profit Targets.

Whereas in the past (many years ago)...

I was trading my expectations that were based upon either some risk:reward via comparing a fixed stop to a fixed profit target.

(Note: If my initial stop/loss placement is too far for my taste...I either don't take the trade or reduce my position size.)

I'll be making a common trading mistake to try to tell the market what to give me via using fixed profit targets and such.

I'm just not smart enough to tell the market what to do.

Therefore, as explained before...

If my pt1 develops as a +1.50...

I need to take the profit.

If an hour later my pt1 develops as only +0.75...

I need to take the profit.

Then if 15mins after my pt1 develops into a +3.00...

I need to take the profit.

Thus, trying to determine a fixed profit target prior to the trade is counter-productive especially if the market does something different that wasn't expected after entry.

Therefore, let me repeat...

Take what the market gives you.

Don't try to outsmart the market or your stats may show the results of such...

Results your not happy with.

With that said...

If your method isn't reliable or you plan (intentionally) to apply it in a way that's not recommended...

I agree with what you said...

you need to hit multiple pt1 wins to compensate for one losses' hit.

Thus, you seem to forget so fast...

* You have been having problems trading White Inverted Hammers even after I kepted saying I couldn't find an edge in trading them many years ago (reason why I stop trading them many years ago).

* You have taken rules from one sub-group and applied them to another sub-group via calling them mirror rules after I have made it very clear doing such is not recommended because it's a completely different price action...

A price action your still having trouble trying to understand.

* You have not been taking profits when pt1 was reach via some expectation of something else...

Letting winning trades become either breakeven or losing trades when they retrace against you.

* Your placing your initial stop/loss protection in logical areas to be pick pocketed.

* Your contingency plan is unclear for the same type of price action (I've studied your charts) via you reversing a losing Long position into a profitable Short position on one chart and stating it wasn't activated on another chart that resulted in a loser.

* You've been applying a breakout entry method (highly not recommended by me) to the Hammer Pattern sub-groups I'm discussing in this thread...

Reducing your risk control...something you've have already admitted hasn't been working so hot (breakout entry)

Thus, its simple...

The trade management rules that I use...

Work together as a team.

Whereas your breakout method, logical stop/loss protection, fixed profit targets (ignoring WRB pt1) et cetera are all in conflict with each other.

In fact, whenver I myself don't follow my pattern signal rules, entry signal rules, bend the rules sort'uv speak or try something new that's in comflict with the other aspects of the trade management...

I have trading problems and I know the feeling very well that you have described...

Chaos.

Also, I am aware of the fact you already have a profitable Hammer Pattern sub-group that's 75% reliable for you.

Is it possible you have an assumption that what is working for that particular Hammer pattern will work on the Hammer pattern sub-groups I'm discussing ???

Therefore, trying to integrate my stuff with your stuff may not be what's best for you.

With that said...that's one purpose of this thread...

To find out what others are doing differently in trading Hammers that may improve our own trading of a particular Hammer pattern.

However, if trading something our own way doesn't work...

It may be time to start listening to others until we learn enough about a particular price action to be able to bend the rules successfully sort'uv speak.

NihabaAshi
 
Quote from sunnyskies:

If someone wants to dig thru past postes and summarize a rules check list for the Bearish Dark Inverted Hammer (similar to the one I did for Bullish White Hammer), go ahead. I won't do it. For now I'll take a backseat and watch this thread like most of you have been.
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No need...

I've already summarized and revealed additional rules for the Dark Inverted Hammer in the post today 09-19-05 09:01 AM.

However, if you want to re-write them (highly recommended) so that it helps to remember them as you make your own checklist sort'uv speak...

Please do so.

NihabaAshi
 
hi NihabaAshi - great thread here -
(1) i saw you made a point re. 1 minute charts, that they don't work for you - i use short-term charts mostly, 1 min and tick/tick-range, and lately i have come to realize that some of the entries i am taking off these short term charts often end up being hammers on higher timeframe charts, i.e. 15-30 mins - i think it's interesting in the sense that i am looking for essentially the same thing as you, i.e. as you call it "bullish/bearish action" etc. but my risk/stop is very tight on these entries.

(2) you have presented here some specific rules on trading these hammer patterns - since these are quite specific, it seems to me that it should be possible to backtest them - have you looked into it, or is there a reason why not - or perhaps you have addressed this earlier in the thread, pls let me know where, i have not had a chance to read the whole thread, thx.
 
Quote from NihabaAshi:


In fact, whenver I myself don't follow my pattern signal rules, entry signal rules, bend the rules sort'uv speak or try something new that's in comflict with the other aspects of the trade management...
NihabaAshi
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I wonder if you get times when you can tell from watching the market so much that it is going higher or lower (market intuition so to speak), but don't quite get the exact entry signal in the candles what do you do? Leave it alone or sometimes chase it based on your gut feel.
 
Quote from NihabaAshi:

I'll be making a common trading mistake to try to tell the market what to give me via using fixed profit targets and such.

NihabaAshi
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I think fixed profit targets are not necessarily all bad. I use fixed profit targets to calculate my profit objectives for each trade. However, I do use market generated information in terms of 10 day volatility studies to calculate them rather than using some arbitrary number which is what I think you were talking about. I also use five different profit levels because you never know how far a move is going to go. That works quite well for me.
 
Quote from LondonUSTrader:

I think fixed profit targets are not necessarily all bad. I use fixed profit targets to calculate my profit objectives for each trade. However, I do use market generated information in terms of 10 day volatility studies to calculate them rather than using some arbitrary number which is what I think you were talking about. I also use five different profit levels because you never know how far a move is going to go. That works quite well for me.
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Hi LondonUSTrader,

Yes...I was talking about fixed profit targets in terms of an arbitrary number that has no relationship to the current price action of the market...

A number that usually doesn't change from one trading day to the next trading day eventhough the price action changes from one trading day to the next trading day.

NihabaAshi
 
Quote from fader:

hi NihabaAshi - great thread here -
(1) i saw you made a point re. 1 minute charts, that they don't work for you - i use short-term charts mostly, 1 min and tick/tick-range, and lately i have come to realize that some of the entries i am taking off these short term charts often end up being hammers on higher timeframe charts, i.e. 15-30 mins - i think it's interesting in the sense that i am looking for essentially the same thing as you, i.e. as you call it "bullish/bearish action" etc. but my risk/stop is very tight on these entries.

(2) you have presented here some specific rules on trading these hammer patterns - since these are quite specific, it seems to me that it should be possible to backtest them - have you looked into it, or is there a reason why not - or perhaps you have addressed this earlier in the thread, pls let me know where, i have not had a chance to read the whole thread, thx.
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Hi fader,

Yes...

(1) It's not uncommon to see Hammers on a short term charts develop (price action remains bullish) into Hammers on higher chart intervals.

(2) Absolutely...any method with specific rules can be backtested.

However, preferably such be performed via manually backtesting by making a checklist for all the rules and reviewing historical information.

Further, I'm an advocate that a trader must understand the price action of the strategy/method prior to any kind of backtesting.

This allows for the trader to develop a feel for the price action when combining manual backtesting and understanding the price action.

That's a critical aspect of knowing how to adapt ones method when market conditions change...

Market conditions that will change.

Without that feel for the price action...we will enter drawdown periods too deep for our taste or using a method that's no longer valid.

That's one of the main reason why I strongly recommend doing live-recordings of the price action to help with the feel for market action.

Last of all, we aren't talking about generic price action...stuff that easily can be backtested via some code.

One thing that determines the success of a candlestick pattern is the trade management.

Sunnyskies stats via his trade managment versus my stats of of charts via my trade mangement (a different trade management) is a good example of the impact trade management has on any Pattern Signal.

Therefore, to do proper backtesting of any Pattern Signal...

We need to include the entire method that includes the trade mangement rules.

Once again...I'll repeat it...

Backtesting should only be performed after someone understands the price action.

NihabaAshi
 
Quote from LondonUSTrader:

I wonder if you get times when you can tell from watching the market so much that it is going higher or lower (market intuition so to speak), but don't quite get the exact entry signal in the candles what do you do? Leave it alone or sometimes chase it based on your gut feel.
More...

There are a few times when I trade my intuition sort'uv speak because I feel I know what's going on.

In such cases...I'm not trying to get an exact entry.

Also, I still use the same trade managment rules as if I did get a valid Pattern Signal and a valid Entry Signal.

However, most of the time when that intuition is creeping into my trading...

I usually reduce my position size to better control my risk exposure.

NihabaAshi
 
Quote from NihabaAshi:

Backtesting should only be performed after someone understands the price action.

NihabaAshi
More...


NihabaAshi-- could you perhaps come up with a list of questions the trader should be able to answer if he understands the price action enough to backtest, as you put it?

PD
 
Quote from PetaDollar:

NihabaAshi-- could you perhaps come up with a list of questions the trader should be able to answer if he understands the price action enough to backtest, as you put it?

PD
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Hi PetaDollar,

That's one of the best questions of this thread. :cool:

* What's the psychology between buyers and sellers of each rule (criteria) ?

* What's the psychology between buyers and sellers as we traverse from one rule to the next rule (criteria) ?

* What's the key events (economic reports, regular schedule events or breaking world news) prior to each valid Pattern Signal ?

Be more concerned about particular key events being hyped prior to the Pattern Signal.

* Is there an obvious price pattern on a higher chart interval regardless if we know how to trade it or not ?

---------------

The above is just the basic and reveals a story behind each Pattern Signal and/or Trade...

A story to learn from and to minimize any drawdown periods.

Without it...all we see are just numbers of reliability, win/loss ratios et cetera.

NihabaAshi
 
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