Trading Hammers (revisited)

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Quote from osho67:

Hi NihabaAshi

I would like to get into candlestick patterns. I am day trading mostly YM and ER2.Will candlestick work for daytraders?Opinion from all much welcome. Thanks
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Hi osho67,

As you know...this thread is about traders sharing their own particular type of Hammer pattern that works for them as they trade particular trading instruments.

I myself am discussing only a few types (sub-groups) of Hammer patterns that are reliable while not discussing other types (sub-groups) of Hammer patterns that do not work (not reliable).

Further, another theme in this thread is about understanding the price action that leads into the Hammer pattern formation.

The above is something most traders do not want to deal with or make a huge judgement error in thinking its not important because they think its all about the pattern signal.

My point...once you start understanding price action regardless if your trading Hammer patterns or not...

That in itself will increase the reliability of any strategy.

Another theme in this thread is that the trade management has an impact on the reliability of Hammer patterns.

If you don't understand how important trade management is...please re-read the conversations I had in this thread between sunnyskies and I after he posted some results of recent price action...

An excellent example of two traders using the exact same pattern signal rules but getting completely different results (one trader is losing while the other is profitable) because the trade management is different.

With that said and to answer your question more specifically...

If your talking about Japanese Candlestick patterns in general as in all patterns...

Most of it does not work and mainly because most of it is explained in generic terms under the realm of trying to keep it simple.

Most of it has no trade management.

Most of it do not get into the understanding of the market itself.

Most of it do not get into methods of learning.

The above is why most of it doesn't work.

If you want to talk about Japanese Candlesticks in general and not about specific types of Hammer patterns...

There's a prior thread you should read that may shed some more light on an answer to your question...

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

With that said...read this entire thread...

Write down all the rules being discussed and then re-read this thread again to learn more about all that other important stuff (learning methods, understanding the market, trade management et cetera) and your journey will begin in a good direction.

Also, make sure you print all all the charts and keep them well organized or save them as digital images on your computer in well organized directories.

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

How important is the high of the white candle line after a bullish dark hammer as opposed to the closing price of the white candle line in confirming price shift?
 

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Quote from rainman2:

Hi NihabaAshi,

How important is the high of the white candle line after a bullish dark hammer as opposed to the closing price of the white candle line in confirming price shift?

http://www.elitetrader.com/vb/attachment.php?s=&postid=1103436
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Hi rainman2,

If your talking about the Bullish Dark Hammer pattern I'm discussing in this thread...

The close of the white candle line is extremely important and the high of the white candle line is unimportant.

However, your chart doesn't represent my Bullish Dark Hammer pattern and based upon the price action on your chart...

The close of white lne is also more important than its high price in that the close must be > close of dark hammer line.

Further, I don't even trade that type of Dark Hammer pattern you show on your chart and that means I am unable to answer you question that's annotated on the chart...

...would entry on close of white line be considered price improvement?

However, I usually have one basic rule for all Hammer pattern sub-groups that occurred after three consecutive dark lines as shown on your chart...

* Close of White Confirmation Line > Open of Dark Hammer Line

Lets pretend there was not three consecutive dark lines before your dark hammer line...

The general rule will change.

* Close of White Confirmation Line > Close of Dark Hammer Line

Here's the reality of your chart...there's a dark hammer line that's followed by a white inverted hammer line.

That's a particular 2 candlestick line formation (not discussed in this thread and its not reliable) that needs further confirmation.

Simply, whenver I see that low reliable pattern as shown on your chart...

I wait for further confirmation in the following intervals.

Just a reminder...be very careful trading Hammer patterns that occur after three consecutive dark lines.

That's a lot of downside pressure for a Hammer line to overcome and those that went long either during the formation of the Hammer line itself or in small bodies that occur after the Hammer line...

(downside pressure: you will see momentum and/or volatility increase as the change from demand to supply deepens.)

Longs are easily shaken out of their positions on any continued weakness and its not uncommon to see a Dark WRB form below those types of Hammer Lines as those weaks longs jump ship sort'uv speak.

Mark
(a.k.a. NihabaAshi Japanese Candlestick term
 
Just posting a 2 min. chart from ER today that has 2 hammers viisible (enclosed in the rectangles).

These hammers do not fit the hammer patterns discussed in this thread and neither of them would have resulted in a good trade.

The first White Hammer line could have resulted in a b/e trade or a very small profit for a good trader who can recognize when an entry is not working out..
 

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Hi NihabaAshi,

I'm looking at daily charts more to set up my intraday levels and my position size management. June 8th was a big hammer day on the heaviest volume of the year. I'm attaching a few charts with observations about market breadth.Hopefully, this is staying on course with the thread.
 

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