Trading Hammers (revisited)

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Mark, this is a great thread... thanks for keeping it going. There is a lot of great stuff here. I particulary like the idea of looking for Candlestick patterns within the S&R areas defined on 30 min charts as mentioned in an earlier post...
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You should also notice that Long Lower Shadows were involved in the bounce off the lows on Dec 18th.

The key here, as mentioned many times in this thread, is to understand the price action prior to any candlestick pattern formation.

Simply, look for other pattern signals to develop within key s/r zones...

S/R Zones formed by prior key pattern signals.
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With that in mind I pulled up my 30 min charts for the June ES contract from Friday, March 24th and set out to find key S&R areas for this coming Monday.

I am having some challanges putting your idea to a practical application. Would you mind looking at the attached chart and maybe mark it up? I have what I think would be the correct near S&R areas in boxes but I would appreciate your perspective. Thanks

~EC
 
Quote from El Cazador:

Mark, this is a great thread... thanks for keeping it going. There is a lot of great stuff here. I particulary like the idea of looking for Candlestick patterns within the S&R areas defined on 30 min charts as mentioned in an earlier post...
=============================================
You should also notice that Long Lower Shadows were involved in the bounce off the lows on Dec 18th.

The key here, as mentioned many times in this thread, is to understand the price action prior to any candlestick pattern formation.

Simply, look for other pattern signals to develop within key s/r zones...

S/R Zones formed by prior key pattern signals.
==============================================

With that in mind I pulled up my 30 min charts for the June ES contract from Friday, March 24th and set out to find key S&R areas for this coming Monday.

http://www.elitetrader.com/vb/attachment.php?s=&postid=1410654

I am having some challanges putting your idea to a practical application. Would you mind looking at the attached chart and maybe mark it up? I have what I think would be the correct near S&R areas in boxes but I would appreciate your perspective. Thanks

~EC
More...

Hi EC,

The reason why you having challenge in putting my idea about s/r zones into practical application is because I have not discussed such in detailed nor will I do such in this thread.

Also, the quote you reference is about using whatever pattern signals your using to designate them as s/r zones.

Thus, there really is no correct type of s/r zone or levels because there's hundreds of different ways to derive such (math, trendlines, pattern signals, WRB, key market events et cetera).

I use several different types of s/r zones and my attached chart of the S&P 500 Emini ES 30min chart shows at least three different types via volatility analysis (my chart is the same as your except its a bigger picture of the price action involving prior trading days).

* Pattern Signal within a volatility spike

* WRB in reaction to contracting volatility

* Hammer Line in reaction to contracting volatility that at one point in time the Hammer Line was a WRB prior to retracement to complete itself as a Hammer Line.

Getting back to using a pattern signal as an s/r zone that you referred to as one of my past quotes...

My chart for s/r zones will obviously be different than your chart because we are using different pattern signals.

Simply, I'm going to assume that what you highlighted on your chart represents pattern signals from your trade methodology.

Thus, if that is the case, your chart is correct and you simply draw your zone from the pattern signal going to the right.

Therefore, on Monday, you should look for pattern signals within the s/r zone of your prior pattern signals.

You can also use the s/r zone via a pattern signal as profit targets.

For example, lets pretent you get a Long signal below your s/r zone of a prior pattern signal...

You can exit your position when it reaches the s/r zone.

Just the same, lets pretend you get a Short signal above your s/r zone of a prior pattern signal...

You can cover your position when it reaches the s/r zone.

Anyways, the above is stuff I've mentioned before here at ET but I won't go into further details beyond that.

Once again, there are many ways to compute s/r zone and such should be closely correlated with your entry signal.

Therefore, if you trade breakouts...your s/r zones should be based upon breakouts.

If your trading floor trader pivots...your s/r zones should be based upon floor trader pivots.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 

Attachments

Thanks for the response Mark.

Do you feel that there is a most reliable time frame for looking for these WRBs and Hammers? Is the min timeframe a 3-5 min and the more reliable the 15-30 min? Also is there an value for the bars that is prefered... i.e. Hammer candles are min 2.5 points and WRBs are min 6 points? And how far back in time do they retain validity?

Thanks again.

~EC
 
Quote from El Cazador:

Thanks for the response Mark.

Do you feel that there is a most reliable time frame for looking for these WRBs and Hammers? Is the min timeframe a 3-5 min and the more reliable the 15-30 min? Also is there an value for the bars that is prefered... i.e. Hammer candles are min 2.5 points and WRBs are min 6 points? And how far back in time do they retain validity?

Thanks again.

~EC
More...

Hi EC,

All your questions about WRBs (outside of profit targets) is beyond this thread.

As for interval (time frame) preference...

Choose one your comfortable with or follow as many as you can follow when looking for Hammer pattern signals.

For example, if your a day trader or scalper...you aren't going to be using the 60min nor daily chart.

If your swing trading you aren't going to be using the 1-3min chart time frames.

Thus, use a interval that correlates with your trading style.

However, if monitors real estate (not enough monitors or you only want to use 1-2 monitors) then the subject called candlestick blending or deblending is something you should learn about.

For example, lets say your looking at the 5min chart and via candlestick blending...you'll be able visualize the price action on the 15min chart or any chart interval muliply by 5.

I think there's a few candlestick books on the topic and some quick online free references (scroll down to the bottom of the link below).

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:introduction_to_candlesticks

There's other free sources about blending that can be found via Google search engine.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Bullish White Hammer Pattern.

What will happen with the No Demand on the hard right edge inside of the WRB support/resistance zone?

VSA tells us that there is still too much supply in the market and thus the market should go down.
 

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Is this a bullish dark hammer pattern via the ones you are discussing?

The white WRB after the hammer is really the candle line in question. Does that constitute "engulfing"?

I know that candle line needs:

* to be a WRB.

* close higher than the candle line but less than the highest high of the prior 3 intervals.

* engulf the dark hammer line.

Of course all the requirements about the depth of the hammer shadow in comparison to the prior 3 intervals remains in tact. As well as the body requirement.
 

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Quote from KPCURRENCY:

Is this a bullish dark hammer pattern via the ones you are discussing?

http://www.elitetrader.com/vb/attachment.php?s=&postid=1411609

The white WRB after the hammer is really the candle line in question. Does that constitute "engulfing"?

I know that candle line needs:

* to be a WRB.

* close higher than the candle line but less than the highest high of the prior 3 intervals.

* engulf the dark hammer line.

Of course all the requirements about the depth of the hammer shadow in comparison to the prior 3 intervals remains in tact. As well as the body requirement.
More...

Hi KPCURRENCY,

I'll let you read the below link to determine why that is not the Bullish Dark Hammer pattern I'm discussing in this thread.

11-28-06 Partial Rule Summary (more than prior summary)

http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880&perpage=5&pagenumber=144

09-13-05 Partial Rule Summary

http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880&perpage=5&pagenumber=53

Hint - There's something wrong with the price action between dark line (c2) and dark line (c3).

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Quote from KPCURRENCY:

Bullish White Hammer Pattern.

What will happen with the No Demand on the hard right edge inside of the WRB support/resistance zone?

VSA tells us that there is still too much supply in the market and thus the market should go down.
More...

Hi KPCURRENCY,

I'm know just a little about VSA via the other discussion forum we are members at.

Yet, I don't know enough to use it nor do I have access to the trading tools involving VSA.

Note: I won't mention anything else about it because I don't want this thread to develop into any discussions about VSA considering this thread is about Hammer patterns.

Discussing what I see in your chart attachment...I personally would like to see prices move higher to test the upper price area of that key s/r zone before moving lower.

Then if/when it reaches the upper price area of that s/r zone...

I'll be looking for either trend reversal (Short) or trend continuation (Long) opportunities.

Thus, at current price levels...I'm neutral in my bias until something changes in supply/demand or a market seasonal tendency kicks in.

My bias is strictly for position size managment.

Thus, my position size tends to be normal when I'm neutral.

In addition, there are two small white lines after the most recent White WRB Volatility Spike.

Simply, volatility is starting to contract and if it contracts further on the daily chart or produces a tight trading range on the intraday charts in the first 1-2 hours of trading today or tomorrow...

It could setup a nice volatility spike to produce at least one strong intraday price movement.

Whether that develops into a trend day (up or down) is a different story.

I'll be looking for Hammer patterns and/or Long Shadows for more clues to the price directions along with paying close attention to any key market events this week.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Sensei;

You are correct. This thread is about certain reliable Hammer patterns (secondary method) and not VSA/WRB (primary method), and should be kept as such.

However, I would note something about the two narrow intervals of which you speak. The arrow points to the last one and in VSA that is a No Demand bar. You look at Volatility and come to the same conclusion that one looking at Volume does.

Two different paths one destination.

As for the hammer pattern.

I notice that the shadow of the interval is below the body of the hammer line.

I see that the white WRB has a close > then the high of the interval prior to the hammer line.

I also see that the close of the interval prior to the hammer line is NOT >= the OPEN of the dark hammer line.

How price trades (price action) prior to this or any pattern is where the real understanding of supply/demand dynamics comes into play.

Something very fundamental is happening during the formation of a hammer line. But the price action prior creates the prism thru which that hammer can be viewed.

If I learn nothing more than that, I will be the better for it. Thank You.
 
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