Trading Hammers (revisited)

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Quote from rainman2:

Hi NihabaAshi,

It's been getting a little quiet in here and I am just way too interested in this to sit idly by. First off, I've been only lurking on this thread because I trade stocks and I know that you do not trade or respond to their price action, but I was hoping you might respond to the accuracy of the set-up and the pt's.This will be my first time posting a chart so I hope all goes well.
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Hi Rainman,

I follow closely the Exchange Traded Funds...

DIA, GLD, OIH, IWM, QQQQ and SPY because they help me with my futures trades.

In fact, I've mentioned a few times in this thread about taking trades in the futures based upon pattern signals in their respected ETF's eventhough the futures itself doesn't have a valid pattern signal.

I've given a few examples of such in this thread (Futures/ETFs).

Thus, I'm glad you posted that chart because anyone trading gold or silver futures should be also watching GLD and SLV and vice versa along with either the Gold and Silver Sector Index (XAU.X) or the CBOE Gold Index (GOX.X).

I myself prefer the XAU.X instead of the GOX.X

These are things that we retail traders should be paying close attention even if trading ES eminis because the talk of the town markets (key markets) at the moment have a big impact on the Eminis.

Understanding the price action that produced the pattern signals

Now for your chart.

It's not a Bearish Dark Inverted Hammer pattern I'm discussing in this thread because on your chart the long upper shadow is not engulfing[/b] any prior interval bodies.

However, there was other bearish info at the time of your Dark Inverted Hammer Line to easily compensate for any problematic candlestick pattern analysis.

As for your profit target levels (pt's)...looks like your using the prior price action of the low of a WRB (pt1) and the prior price action of the low of a White Hammer Line (pt2).

That's good and its a variable of WRB Analysis instead of using WRBs that form after your entry.

I myself use more of the latter.

Once again...thanks for the chart.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Hey NihaAbashi,

Thanks for this continuing thread.. One of Elite's best by far..

I just wanted to point out something I mentioned in the previous thread (Trading Hammers) that I feel still holds a lot of weight in the reliability of these Hammer patterns..

This chart you posted from 8/10/05 with the failed Hammer pattern.. I've noticed these patterns lose their reliability when forming after coming out of a consolidation/bearish continuation pattern like the triangle I marked on your chart attached..

I will look for more examples of such and try to post them when I can...

I am just making an observation of something I've noticed over the years.. by no means am I trying to pass myself off as an expert or profitable trader...
 

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Quote from Flashboy:

Hey NihaAbashi,

Thanks for this continuing thread.. One of Elite's best by far..

I just wanted to point out something I mentioned in the previous thread (Trading Hammers) that I feel still holds a lot of weight in the reliability of these Hammer patterns..

This chart you posted from 8/10/05 with the failed Hammer pattern.. I've noticed these patterns lose their reliability when forming after coming out of a consolidation/bearish continuation pattern like the triangle I marked on your chart attached...

http://www.elitetrader.com/vb/attachment.php?s=&postid=1073941

I will look for more examples of such and try to post them when I can...

I am just making an observation of something I've noticed over the years.. by no means am I trying to pass myself off as an expert or profitable trader...
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Hi Flashboy,

I remember that chart well because on Aug 10th and Aug 11th 2005 I posted two charts with incorrect info.

One chart I called it a Bullish White Hammer pattern when it was a Bullish Dark Hammer pattern...comments about the correction posted the next day.

However, I forgot to comment on the other chart...

http://www.elitetrader.com/vb/attachment.php?s=&postid=1073941

Yes, White Hammer Lines that form a valid pattern below a triangle breakdown are usually low reliable patterns and one of that types of White Hammer pattern sub-groups I don't like to trade (too risky).

Also, it's the price action was still within the residual affects of the FOMC announcement to help from such a strong breakdown below the triangle formation.

That it was one of the low reliable Bullish White Hammer patterns in which the White Hammer Line occurs after three consecutive dark lines with lower closes.

I did comment about it later in the thread (without making reference to that particular chart) that when we see those consecutive dark lines with lower closes...

That's a lot of downside pressure for the buyers to overcome and its best to take the ones in which the Close of the White Line > Open of the prior interval.

If that price action occurs...the reliability increases.

Simply, you know the pattern signal occur within the wake of the FOMC announcement, breakdown below a triangle formation and within the s/r zone of a long lower shadow dark hammer line that represents weakness...

This is a classic example of having a valid pattern signal that's not tradable due to its low reliability.

I once mentioned in the other Hammer thread that there are +12 Bullish White Hammer pattern sub-groups and most of them are low reliable with just a few reliable patterns.

The chart represents one of the low reliable that can easily mask itself as buyers showing up when in reality its just a Bearish continuation pattern with the Dark WRB occurring after the White Hammer Line as a confirmation to that bearish continuation.

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

Going through this thread, many have posted about failed hammer patterns and hammer lines and you have posted reasons for the failures and contingency plans for valid patterns. I was wondering can you (or better yet should you) use the rules that you have given to anticipate a potential failed hammer pattern or line and get a better entry price?

I took a trade in XLE (OIH is just to crazy for me at this point) today anticipating a failed hammer. It worked out for me although my pt(55.16 on the 15 minute chart from yesterday) was never hit. Was it a valid trade and are the pt's that I drew in more in line with your exit points. By the way, I considered this a failed hammer pattern because the lower shadow was not longer than the preceeding red doji line and that the oil futures were trending down at that time.Thanks in advance.
 

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Hey NihabaAshi,

Started reading through the thread last night.. so have a ways to go to catch up..

found a chart with two nice hammer patterns.. would like your comments on if you can..

1st hammer - looks like a valid tradeable pattern but there was a price void below (no support) which would have hopefully kept me out of the trade.

2nd hammer - price void below still but I've found when two reversal signals are present within 6 - 10 bars of each other the 2nd signal is usually pretty reliable..

Any thoughts??
 

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Quote from rainman2:

Hi NihabaAshi,

Going through this thread, many have posted about failed hammer patterns and hammer lines and you have posted reasons for the failures and contingency plans for valid patterns. I was wondering can you (or better yet should you) use the rules that you have given to anticipate a potential failed hammer pattern or line and get a better entry price?

I took a trade in XLE (OIH is just to crazy for me at this point) today anticipating a failed hammer. It worked out for me although my pt(55.16 on the 15 minute chart from yesterday) was never hit. Was it a valid trade and are the pt's that I drew in more in line with your exit points. By the way, I considered this a failed hammer pattern because the lower shadow was not longer than the preceeding red doji line and that the oil futures were trending down at that time.Thanks in advance.
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Hi rainman2,

I'm not sure if I understand your first question.

Anticipating a failed pattern for a better entry price.

Can you describe a hypothetical trade so I can understand because its sounds like your saying that if you see, for example, a Bullish White Hammer pattern and it immediately goes southward before you can get long...

Are you saying you want to wait and try to get a better entry price either within the long lower shadow area or lower?

Also, your chart doesn't represent any Hammer pattern I'm discussing in this thread.

http://www.elitetrader.com/vb/attachment.php?s=&postid=1073979

If that's your own pattern...can you disclose what your entry rules are?

In addition, the profit targets (pt levels) looks good eventhough its not a pattern signal I would have traded.

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

Hey NihabaAshi,

Started reading through the thread last night.. so have a ways to go to catch up..

found a chart with two nice hammer patterns.. would like your comments on if you can..

1st hammer - looks like a valid tradeable pattern but there was a price void below (no support) which would have hopefully kept me out of the trade.

2nd hammer - price void below still but I've found when two reversal signals are present within 6 - 10 bars of each other the 2nd signal is usually pretty reliable..

Any thoughts??
More...

Hi Flashboy,

1st Hammer Pattern: Not valid and such is explained why in my prior post to you about how the White Hammer Line must react to three dark lines with consecutive lower closes.

2nd Hammer Pattern: Valid pattern signal.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Got it now.. I read so much last night everything started meshing together.. and those little details get overlooked..


Today's 5 min. chart of ER attached.. if you'd like to comment on it..

I've marked 3 bars with circles.. Would you consider those first two Hammers??

I"m trying to catch up to this thread so I can comment on these just don't feel comfortable yet...
 

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Quote from Flashboy:

Got it now.. I read so much last night everything started meshing together.. and those little details get overlooked..

Today's 5 min. chart of ER attached.. if you'd like to comment on it..

I've marked 3 bars with circles.. Would you consider those first two Hammers??

I"m trying to catch up to this thread so I can comment on these just don't feel comfortable yet...
More...

Hi Flashboy,

The first two White Hammer Lines you have circled are not valid Bullish White Hammer patterns and the specific rules discussed in this thread explains why.

However, the third White Hammer Line is involved in a valid Bullish White Hammer pattern.

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

Using my XLE chart as an example, when I miss a move(in this case to the short side) I try not to chase it and so my mindset turns to looking for a reversal signal. So, when the dark hammer line forms I immediately start thinking reversal(wait for the next candle to be white and engulf the body of the hammer line then wait for price improvement and enter long.)

BUT, because that dark hammer line was not a valid pattern even if the next line was a white engulfing pattern, I used the dark hammer line as a bearish continuation candle and entered at its close.As it turned out, I could have gotten a better entry price 2 candle lines later but whose to know...

So I guess what I'm asking is that if a hammer pattern is not valid , should you use the hammer line as a continuation entry
or is their a complete different set of entry rules? If this question goes outside the scope of what your accomplishing in this thread, I apologize...just trying to think outside the box.
 

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