Trading Hammers (revisited)

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Quote from Weekly Trader:

** Close of white WRB (after the Dark Hammer line) must be <= highest high among the prior 3 intervals ***

The high of that white WRB is way below the high of the first interval before the dark hammer line -- is that why it does not meet your rule?
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Hi Weekly Trader...the Close of the White WRB in its relationship (how far below) the highest high of the prior 3 intervals has absolutely nothing to do with why your pattern is not valid.

As long as Close of White WRB < or = Highest High...that's what's important...

Not how far below (how less).

Here's why your pattern is not valid via what I've been discussing about the Bullish Dark Hammer pattern.

First of all, I gave a big hint...the engulfing.

If you look at your candlestick lines and then label them c1, c2 and c3 as I show in the specific details...

You will see that on your chart...c3 is a White Line whereas my c3 on all my charts are all Dark Lines.

Here's that rule again as explained in those two links I posted earlier...

* Body of the White Line (c1) engulfs the body of the Dark Line (c3).

The above statement is saying that c3 is a Dark Line.

Now...lets pretend your c3 was a Dark Line (switching the position of the Open and the Close).

Here are the other critera as detailed at the two links I posted earlier to be even more specific in defining exactly what is meant by engulfing...

* Close of White Line (c1) > Open of Dark Line (c3)

* Close of Dark Line (c3) > or = Open of Dark Hammer Line (c2)

Your chart...pretending the White Line (c3) was a Dark Line (c3)...

Close of Dark Line (c3) < Open of the Dark Hammer Line.

When that happens...the body of the Dark Line (c3) is no longer being engulfed by the White WRB Line (c3) because the part of the body of the Dark Line (c3) is being shielded or protected from the engulfing price action of the White WRB Line (c3).

As mentioned before...be careful about similar like patterns (different sub-groups).

These are specific detailed rules and they are not subjective.

Here's another rule to help with the engulfing definition that's involved in this particular candlestick pattern...

* Open of White Line (c1) < Close of Dark Line (c3)

The above criteria ensures the White WRB is engulfing that Dark Line.

Further, bullish dark hammer patterns are very weak pattern signals (not very reliable) but when combined with another pattern (ex. engulfing) their reliability improves dramatically.

By the way, I've briefly discussed and/or shown other types of bullish dark hammer patterns in this thread but only in relationship to a question someone asked me in this thread.

Yet, I didn't disclose any specific rules of those particular sub-groups to prevent getting them confused with the type of bullish dark hammer pattern sub-group that's reliable.

Simply, when comparing your charts with my charts...concentrate on the ones at the two prior links in reference to the reliable bullish dark hammer with the engulfing price action.

Quote from Weekly Trader:

May I also say that you would have traded WH1 and WH5 according to this chart that you posted before?

http://www.elitetrader.com/vb/attachment.php?postid=838591

I am just asking to see that I have understood you correctly regarding the bullish white hammer patterns you discussed on this thread.
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Yes...your correct :cool:

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

That was certainly a rule I have missed. By the way, can your rules be applied to common stocks and not just futures?. I know you don't trade common stocks as you have indicated before.

I am not also a day trader as you are, and I focus mostly on weekly charts - not daily or intraday charts. So can your rules be applied to any timeframe type of charts?
 
Quote from Weekly Trader:

Thank you.

That was certainly a rule I have missed. By the way, can your rules be applied to common stocks and not just futures?. I know you don't trade common stocks as you have indicated before.

I am not also a day trader as you are, and I focus mostly on weekly charts - not daily or intraday charts. So can your rules be applied to any timeframe type of charts?
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Hi Weekly Trader,

I don't know if these Hammer patterns are applicable to stocks although there are a few traders in this thread that did post stock charts via the patterns being discussed in this thread.

Thus, I think you should ask them since they are the stock traders.

Also, here are the time frames I've personally used these patterns on particular futures...

2min, 3min, 5min, 10min, 15min, 30min, 60min, 120min, daily, weekly and monthly.

Any other time frame that's not posted above...I don't know if its suitable for such.

What I'm saying is this...I'm a strong believer that candlestick patterns can't be applied successfully on any time frame when its being applied to a time frame that changes the last interval before the trading instrument closes in that the last interval doesn't equal all the prior intervals.

For example, lets say your trading something that opens at 0930hrs est and closes at 1600hrs est.

A 5min interval fits nicely and the last interval that starts at 1555hrs and closes at 1600hrs is 5min and equals all the prior 5min intervals.

However, change the interval to a 8min chart and the last interval will not equal the prior 8min intervals.

Thus, applying any method regardless if its candlestick analysis or something else should be only applied to a chart interval where all its intervals are equal from open to close.

Last of all, many books or websites will say that candlestick pattern recognition can be applied to any time frame and to any trading instrument (stocks, futures et cetera).

However, don't get such mixed up in thinking it can be applied successfully.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
I'm a freshman in prop-traders and have bad english... many times i have to spend so much time to look up the strange words and find out the different meanings. it's hard and quite boring.

Blessing your help....

question 1:what's the hammer line?? the line means the open price or what else?

question 2:the two types of signals metioned in http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880&perpage=6&pagenumber=10

* Pattern signal: confirmation that a Hammer Line has traversed into a Hammer Pattern.

* Entry signal: Just because its a valid Hammer Pattern doesn't mean its tradable.

what's 'traversed into a Hammer Pattern'?

hoping for help.... thanks...
 
Quote from wencyan:

I'm a freshman in prop-traders and have bad english... many times i have to spend so much time to look up the strange words and find out the different meanings. it's hard and quite boring.

Blessing your help....

question 1:what's the hammer line?? the line means the open price or what else?

question 2:the two types of signals metioned in http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880&perpage=6&pagenumber=10

* Pattern signal: confirmation that a Hammer Line has traversed into a Hammer Pattern.

* Entry signal: Just because its a valid Hammer Pattern doesn't mean its tradable.

what's 'traversed into a Hammer Pattern'?

hoping for help.... thanks...
More...

Hi wencyan,

I've attached a mini-sized Dow YM futures 2min chart to give you a visual explanation of the difference between a Hammer LINE versus a Hammer PATTERN.

Simply, a LINE is just one interval.

A PATTERN involves several intervals.

As for the Pattern Signal versus an Entry Signal.

Most traders will take a trade if they get a confirmed valid pattern signal.

However, I myself prefer one addition step that involves the price action in the first few minutes after the Pattern Signal.

If that price action is behaving the way I think it will allow for a good entry...

It's what I call an Entry Signal.

Thus, its not uncommon for me to get a valid Pattern Signal but not a valid Entry Signal to prompt me to take the trade.

Some call it a double confirmation process but I prefer to call it Pattern Signal and Entry Signal.

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

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1088062</img>
 

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NihabaAshi,

Is there any additional rule to the following regarding the Bullish White Hammer pattern?

* Low of white hammer line < lows of the prior three intervals.

* Depth (length) of long lower shadow of the white hammer line > depth (length) of the lower shadows of the prior three intervals.

* Depth of top shadow of the white hammer line < Depth of body of the white hammer line

I am currently testing this pattern on stocks using a filter I have developed in http://www.stockfetcher.com that uses your criteria (with no indicator). Let us say that I enjoy making tests :)
 
Hi NihabaAshi

Thanks for your explanation...

I'm Chinese and join in a prop-trading enterprise recently. I happen to know many experienced traders talking their knowledge of stock and try to get help here. Luckly I do get what I want......

The coming days I should try to trade penny stock in NASDAQ, do somebody have the experience about penny stock??? (We have no teachers to tell us the skill and have to do everything ourself.)

I hate my bad English........:mad: :(
 
Quote from Weekly Trader:

NihabaAshi,

Is there any additional rule to the following regarding the Bullish White Hammer pattern?

* Low of white hammer line < lows of the prior three intervals.

* Depth (length) of long lower shadow of the white hammer line > depth (length) of the lower shadows of the prior three intervals.

* Depth of top shadow of the white hammer line < Depth of body of the white hammer line

I am currently testing this pattern on stocks using a filter I have developed in http://www.stockfetcher.com that uses your criteria (with no indicator). Let us say that I enjoy making tests :)
More...

Hi Weekly Trader,

Yes there are additional rules for each of the three following pattern sub-groups I'm discussing:

* Bullish White Hammer Pattern

* Bullish Dark Hammer Pattern

* Bearish Dark Inverted Hammer Pattern

The main reasons why I have not revealed all the rules is that I'm only going to reveal them via pm to those that have demonstrated in this thread or via pm/email the following:

* Understanding of what is causing the price action of the pattern and discusses such with their charts of the pattern signals.

Simply, if someone is not posting chart examples or posting chart examples without discussing the causes (reasons) of the pattern...

That's a trader that most likely will attempt to trade and/or test Japanese Candlestick patterns without an understanding of what is causing the pattern to form.

As I explained many times in this thread...

It's best to ignore pattern signals if you don't know the story of the chart at the time the pattern forms (not via hindsight) for that particular trading day.

Yet, we all know there are many variables to what the market is doing...

Discussion of just one of those variables is good enough.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880&perpage=5&pagenumber=85

http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880&perpage=5&pagenumber=86

http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880&perpage=5&pagenumber=90

* Understanding of the criteria that have been posted so far via not having to ask me if something is valid or not when the criteria that has been revealed so far already gives them an answer.

For example, right now you have written via quoting me...

* Low of white hammer line < lows of the prior three intervals.

Yet, later in this thread or via pm/email you post a chart in asking me if the pattern is valid when it clearly shows the Low of the white hammer line > lows of one, two or all three of the prior three intervals...

That would tell me (if such were to occurred) that you don't have an understanding of what has been discussed already in this thread and the odds are high I will not reveal any more rules until you show an understanding of what's been posted so far.
________

Until then...I'll just reveal some of the rules and/or confirm other rules your able to figure out on your own via all the chart examples I've posted so far.

By the way, I've stated in this thread the following about the Bullish White Hammer pattern that you seem to have missed...

* If the prior three intervals before the White Hammer Line are three consecutive dark candlestick lines...

Close of White Hammer Line must be > Open of the dark candlestick line that's next (most recent) to the White Hammer Line.

There's been a few lengthy discussions about the above particular rule in this thread so far and recently.

Further, all rules are highlighted with the * and make sure you read the entire thread (writting down the rules as they are revealed) to prevent misinterpretations of what has been posted so far.

Why is this thread taking the above route?

To help prevent drawdown periods, to maintain a trading edge, to be able to adapt when the market environment changes without much work...

To just reveal all the rules at the same time for anyone to read without me having an understanding of how someone will apply it, without me having an understanding of what they know et cetera...

It's irresponsible on my part and I'll fall into that same trap that so many traders have fallen into here at EliteTrader.com when they shared their methods.

Also, if this thread seems inactive at times...

It's not.

Most of the informative discussions I'm having with other traders are occurring either via pm or email with those that have an interest in this thread.

I myself have learned something valuable about another type of Bullish Dark Hammer pattern sub-group from someone via email that has been following this thread very closely.

Hopefully, others will show up and share what they know that helps them with Hammer patterns.

Post charts, post charts, post charts and the story (its more than just technical) behind the price action that developed into the pattern signal.

If you don't understand the market for a particular trading day as the price action forms and develops into your pattern signal...its not a valid trade signal.

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

.....For example, right now you have written via quoting me...

* Low of white hammer line < lows of the prior three intervals.

Yet, later in this thread or via pm/email you post a chart in asking me if the pattern is valid when it clearly shows the Low of the white hammer line > lows of one, two or all three of the prior three intervals...

>>>>>>>

Thanks for your explanation.

I don't think however I asked you if a pattern is valid provided that the low of the white hammer line > lows of one, two or all three of the prior three intervals...I knew that specific rule very well as you have explained before.

Anyways...

just to let you know I am following you, the attached is NOT a valid Bullish white hammer pattern because the length of the low shadow of the hammer line is not longer than the second interval before it.
 

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