Trading Hammers (revisited)

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Ok I think I now know the reason..

The body of the dark WRB in my recent two charts does not engluf the bodies of the 3 intervals before it while it does n your charts. So maybe that is the reason why they are not valid white hammer patterns.

Regarding the program for the last chart, it is stockcharts.com. Basically the black intervals are red as well. They indicate the close < open. However close is still > close of the most recent interval before it.

I am trading securities not futures. But I am testing the rules you have demonstrated in this thread on them. I am a learner and like to test new ideas. The last chart I posted is a stock chart from stockcharts.com
 
Hammers can easily be backtested by people who own backtesting software and has some coding skill. Anyone tried? (i posses none)
 
Quote from Remiraz:

Hammers can easily be backtested by people who own backtesting software and has some coding skill. Anyone tried? (i posses none)
More...

Hi Remiraz,

Welcome back. :cool:

Yes...Hammers can be backtested but the generic patterns are the ones your talking about as being easy to backtest via some computer code.

Yet, I myself used TradeStation for many years in the past and didn't find any reliability suitable for trading via those generic patterns.

Further, the patterns discussed in this thread are not generic patterns and involves much more information that computer codes cannot process.

For example, re-read and read some more what one of the main themes in this thread is about...

Regardless to if the pattern is simple (generic) or complex (as in this thread)...

Just because its a valid pattern signal does not imply its tradable and I gave a few reasons why.

Once again...I don't recommend trading those generic Hammer patterns you see in books, websites or as default computer codes in some software program.

That's my main reason why I no longer get caught up in trying to backtest via a computer code because I already know the answer...

Those generic Hammer patterns are not reliable.

Therefore, if you want to spend your time testing that stuff...go for it.

However, a few ET members have TradeStation and have already discussed their results in the old Trading Hammers thread.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=18381

Also, Wealthlab has some codes you can play around with and the same with some of the other software programs.

You can also go back to the old Trading Hammers thread because someone used a particular software program (I can't remember the name of the program) and came up with a code that produced reliable results although I'm clueless to what type of Hammer sub-group pattern he tested.

Therefore, he may be a good place to start asking questions (send him a pm or email) for those that were able to find a code that produced reliable (profitable) Hammer patterns.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=18381

You can also check out ktmexc20 in another thread because he saids any candlestick pattern can be coded to get some help from him on the coding...

http://www.elitetrader.com/vb/showthread.php?s=&threadid=68416

With that said about computer codes...

I recommend you do your backtesting via the old fashion way.

Get historical data of your trading instrument and review each trading day one by one.

You'll learn a lot more in the process and review key market events of the trading day to make notes about their input into the development of the pattern and their impact on the profitability of the candlestick pattern.

Thus, don't forget the other key part of the equation...

Trade Management after the pattern signal.

If you don't understand how important that is...

Review the conversations between sunnyskies and I in this Trading Hammers (revisited) thread and see some of his statistics (hammers not reliable) that dramatically changed by changing the trade management rules after entry (hammer reliable).

Trade Management: Initial Stop Placement, Trailing Stops, Profit Targets, Contingency Plans.

Simply, two traders using the exact same Pattern Signal but using different trade management rules will produce different trading results...

One gets profits while the other gets losses.

Once again...re-read conversations in this thread with sunnyskies to understand that.

That's another reason why I'm a big fan of manual backtesting (no computer codes) because it allows you to learn and adapt your trading plan and that in itself will enable you to make adjustments to your trading plan whenever market conditions change...

Something computer codes can't do unless you change them after the fact.

Last of all, if you don't understand the price action...its not a tradable pattern regardless if its valid or not.

P.S. This thread as explained in the beginning in conversations with FuturesTrader71 that this thread is not about simple (generic) Hammer pattern trading.

It's a more advance understanding of the price action that forms the pattern and about when to take profits along with warning signs when the pattern will fail.

Anything else is most likely beyond the scope of this thread and should be discussed either via pm or email.

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

Ok I think I now know the reason..

The body of the dark WRB in my recent two charts does not engluf the bodies of the 3 intervals before it while it does n your charts. So maybe that is the reason why they are not valid white hammer patterns...
More...

Hi Weekly Trader,

The Dark WRB (when it occurred) does not engulf the prior three intervals as shown in one of the charts I asked you to review in that link...

http://www.elitetrader.com/vb/attachment.php?s=&postid=800269

Here are the other charts from that link...

http://www.elitetrader.com/vb/attachment.php?s=&postid=804528

http://www.elitetrader.com/vb/attachment.php?s=&postid=806880

http://www.elitetrader.com/vb/attachment.php?s=&postid=800696

With that said...I not saying that the Dark WRB isn't allowed to engulf any of the bodies of the prior three intervals.

It is allowed.

Also, here's my most recent Bullish White Hammer pattern chart posted in this thread...

http://www.elitetrader.com/vb/attachment.php?s=&postid=1089858

Therefore, the price action that involves the relationship between the Dark WRB and its prior three intervals is not engulfing.

It's a relationship that helps differentiate some Dark WRB's from other Dark WRB's.

It's a relationship that helps defines the s/r zone of the Dark WRB and gives a visual representation of the changes between supply and demand.

* Key s/r zone

* Change in supply/demand

Until you understand that relationship...

Backtesting (codes) and trading Hammer patterns that have Dark WRB's among its recent price action is not suitable.

By the way...there's other Bullish White Hammer pattern charts (lots) posted throughout this thread that's not in that single post above.

I'll do a summary of all the charts for each of the three sub-groups before the month of June is over to give the charts a little more organization in this thread.

Understand what the market (its price action) is saying...that's when its ok to apply/trade regardless to what strategy your using.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
You are right.

Despite being able to see some of the valid bullish white patterns, I don't yet get it always right when it involves a WRB. What I see confusing is the price action before the WRB. Maybe it would help to specify the mechanism of this action so people won't confuse it with other patterns.
 
Quote from Weekly Trader:

You are right.

Despite being able to see some of the valid bullish white patterns, I don't yet get it always right when it involves a WRB. What I see confusing is the price action before the WRB. Maybe it would help to specify the mechanism of this action so people won't confuse it with other patterns.
More...

Hi Weekly Trader,

Take a long look at how those three intervals before the Dark WRB.

Print out all the charts including your own charts you had questions about if they were valid or not...

Put them side by side and study them very carefully.

Here's another hint: Dark WRB's only become key s/r zones when the prior three intervals formed their own s/r zone as a unit in which the Dark WRB passes through/below that s/r zone.

Other than that...you really need to figure this out on your own.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Ok here is my observation about the WRBs:

The first chart shows that the unit support zone of the WRB is above the support zone of 1 interval and is below the support zone of 2 intervals. The second chart shows the support zone of the dark WRB is above the unit support zone of some of the intervals before it. Your charts show that the support zone of the WRB is not above any of the unit support zones of the intervals before it.

So I take it that the unit support zone of the dark WRB should not be above the unit support zone of any of the intervals before it in order to be qualified. My 2 charts show clearly that this rule is violated. Am I getting it right this time?
 
Quote from Weekly Trader:

Ok here is my observation about the WRBs:

The first chart shows that the unit support zone of the WRB is above the support zone of 1 interval and is below the support zone of 2 intervals. The second chart shows the support zone of the dark WRB is above the unit support zone of some of the intervals before it. Your charts show that the support zone of the WRB is not above any of the unit support zones of the intervals before it.

So I take it that the unit support zone of the dark WRB should not be above the unit support zone of any of the intervals before it in order to be qualified. My 2 charts show clearly that this rule is violated. Am I getting it right this time?
More...

Hi Weekly Trader,

I'll know if your getting it right when you start posting charts of recent price action of this particular criteria that makes it a valid pattern signal.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Here is one:

It is a valid bullish white hammer pattern..and the support zone of the dark WRB is certainly below the support zones of the 3 intervals before it (assuming the interval labeled "A" is a white interval).
 

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