Trading Hammers (revisited)

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As Niha stated, Hammers with other confirming factors, and we all have our own factors, are yet another look into underlying buy/sell pressures.

Attached I have a basic daily chart of the Dow. A hammer formed at a very obvious weekly trendline and there has been a lot of selling prior to this formation.

I'll post another chart which shows what I will look for to enter a long trade from a smaller timeframe.
 

Attachments

The attached 60m Dow chart is what I see as a great chart pattern.

Great does not mean that it has a greater chance of being a successful trade, just that it is great for illustrative purposes.

The trendline on the 60m chart is in effect, there is a pause at the trendline/resistance line and there is a contraction in price action/candle size.


I will enter long on a break over 10950.
 

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Quote from tradersaavy:

As Niha stated, Hammers with other confirming factors, and we all have our own factors, are yet another look into underlying buy/sell pressures.

Attached I have a basic daily chart of the Dow. A hammer formed at a very obvious weekly trendline and there has been a lot of selling prior to this formation.

I'll post another chart which shows what I will look for to enter a long trade from a smaller timeframe.
More...

I might be wrong but I believe the hammer is not a valid white hammer pattern as discussed here. For one thing, the upper shadow of the hammer line is longer than the hammer body, and the close of the hammer line is not > the open the most recent dark interval since there are 3 consecutive dark intervals before the hammer line.
 
Quote from Weekly Trader:

I might be wrong but I believe the hammer is not a valid white hammer pattern as discussed here. For one thing, the upper shadow of the hammer line is longer than the hammer body, and the close of the hammer line is not > the open the most recent dark interval since there are 3 consecutive dark intervals before the hammer line.
More...

I believe tradersaavy has his own valid Bullish White Hammer pattern with different rules via his words...

we have our own factors.

Thus, another theme in this thread is to encourage others to share their patterns with criteria so that traders can see if those criteria can improve their own trading of Hammer patterns.

Also, as mentioned many times in this thread...

I've documented +12 different types of valid Bullish White Hammer pattern sub-groups (low reliable to high reliable) and I'm only discussing just one particular sub-group because its the one that fits my trading style and I'm satisfied with its reliability level.

Simply, I know there's other types of Bullish White Hammer patterns being exploited.

Hopefully, other traders will share their patterns along with a few rules so that we can understand the pattern...

An understanding that could spark our own quest into a different pattern that's profitable and suitable for our trading style.

Therefore, when someone post charts of what they consider to be a valid hammer pattern while not asking me if its valid...

I just assume they are trading via different rules from what I trade and hopefully they will share what rules they are using.

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

Yes, as always very enlightenining. A big light bulb went on for me this week.

For anybody that cares:

1- re-read and write down every rule.

2- print out every chart.

3- keep asking yourself while looking at a chart, WHY is that a rule? WHY did price action change? WHY does it work? WHY didn't it work? WHERE would I enter? WOULD my entry work on all the charts? WHERE would I exit? WOULD my exit be profitable on all the charts?

4- Turn charts upside down and repeat #3

I know this might seem crazy, but its working for me, and at the very least it has instilled a work ethic and an open-mindedness that I feel will only help me.
 
Hi Tradersaavy,

Thanks for your analysis, but I have a couple of questions:

How long do you hold your trades?(minutes,hours,days,weeks)

Why enter on a break of 10950? Is that an arbitrary number for you or is it a chart based reason(break of tuesday's swing low???)

Does 10950 represent a number that confirms that it won't be a failed breakout of the supply line?

Do you enter when price breaks 10950 or when a hourly candle closes above 10950?

Where would you put your stop? A close below the supply line? A price area that confirms to you that its not a false breakdown? When price closes below the low of the hammer?

I don't know how much your willing to talk about, but if I don't ask.....

Thanks in advance
 
Bullish White Hammer Pattern in the S&P500 index daily chart, PT1 @ ~1290, PT2 ~1307, PT3 ~1320. Stop @ 1230-1235 range.

Move might be supported by a bullish divergence in the histogram.
 

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NihaBaAshi,

On the attached chart I've placed a rectangle around some price action that occured in the ES today..

there are 2 hammers present in this rectangle.. and I know they don't meet your criteria as discussed in this thread.. (the middle bar in the rectangle.. would that be classified as an Inverted Hammer or an Inverted Shooting Star?)

But I was wondering if you could comment on the price action.. is there anything there that would make you think a reversal is not about to take place.

anything you see there or in the price action leading up to the rectangle that would make you stay out of trying any longs??
 
Quote from Flashboy:

NihaBaAshi,

On the attached chart I've placed a rectangle around some price action that occured in the ES today...

http://www.elitetrader.com/vb/attachment.php?s=&postid=1100346

there are 2 hammers present in this rectangle.. and I know they don't meet your criteria as discussed in this thread.. (the middle bar in the rectangle.. would that be classified as an Inverted Hammer or an Inverted Shooting Star?)

But I was wondering if you could comment on the price action.. is there anything there that would make you think a reversal is not about to take place.

anything you see there or in the price action leading up to the rectangle that would make you stay out of trying any longs??
More...

Hi Flashboy,

First of all, take a look at a bigger picture (higher interval)...

We are in the midst of a downtrend.

Therefore, any Long positions would be consider counter-trend trading especially if all your looking at is just candlestick patterns.

As I mentioned a few times in this thread...

Counter-trend trading is not suitable for someone that's new to a method or still trying to make sense of the price action.

Thus, counter-trend trading is only suitable for those that are experience traders (profitable traders) with a particular method (price action) and only if they reduce their overall position size to manage the increased risk exposure.

With that said...Shooting Stars appears at the top of uptrends or at the top of counter-thrusts.

That means what you saw was an Inverted Hammer (no pattern).

The last time you talked about retangle formations after lower highs was as a bearish price action if price breaks below the triangle.

I still agree with that approach.

Simply, my approach would be to try and see if there's any merits to looking for price actions that are good at signaling further price declines after it breaks below the triangle...

A triangle that formed after a lower high...

A lower high that's really a failed counter-thrust...

A failed counter-thrust within an overall bearish trend.

An overall bearish trend being gripped by its balls by Oil price action and other economic concerns.

Therefore, if your going to go Long with all the above hanging over your head...

You better have a solid trading plan that's consistently profitable in price action situations like today.

My question to you is this...you have previously mention this type of triangle price action after a lower high when the overall trend wasn't so hot in that you discussed Shorting such type of price action.

What's different now to make you consider playing this from the Long side???

By the way, do you see the Dark WRB that formed a few intervals after the Dark Hammer Line in your triangle???

A Dark WRB that closed within the lower shadow of the Dark Hammer Line...

May be worth your time to see how reliable of a signal that is to reverse a Long position into a Short position as a contingency plan.

Last of all, don't take trades without any contingency plan to tell you its time to get on the right side of the tracks.

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