Trading Hammers (revisited)

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Im just getting into Candlestick patterns , so I went to a chart and scrolled to the hard right edge "without looking" to see if I could see what would happen in the next few days. What I was surprised to find is that the list of patterns that I have did not match any of the chart patterns. Is this normal or am I missing something.
 
Quote from Rong:

Im just getting into Candlestick patterns , so I went to a chart and scrolled to the hard right edge "without looking" to see if I could see what would happen in the next few days. What I was surprised to find is that the list of patterns that I have did not match any of the chart patterns. Is this normal or am I missing something.
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First, don't use candlestick patterns to predict the future.

Also, this thread is about Hammer patterns and I'm going to assume your talking about Hammer patterns that didn't match any of the Hammer patterns you've read in books et cetera.

Yes, that is normal and the reason why I started this thread to discuss Hammer patterns we don't see in trading books.

More importantly, to discuss the causes and the price action that developed prior to the formation of the Hammer patterns...

Helping to understand the price action itself.

Therefore, your not missing anything via seeing stuff not discussed in any books.

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

Another attempt at a posting - if you can see it, does this qualify? Background support @ 2460 & hammer could be regarded as a 'test' of this area.

It would seem that, in the examples you have published, bullish white hammers outnumber the others: is this the norm or does it simply reflect a bullish tendency in the markets since you commenced this thread?

Many thanks,

John G
 

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Quote from jeg:

Hi Mark,

http://www.elitetrader.com/vb/attachment.php?s=&postid=1276995

Another attempt at a posting - if you can see it, does this qualify? Background support @ 2460 & hammer could be regarded as a 'test' of this area.

It would seem that, in the examples you have published, bullish white hammers outnumber the others: is this the norm or does it simply reflect a bullish tendency in the markets since you commenced this thread?

Many thanks,

John G
More...

Can you tell me what Bullish White Hammer rules your using that has been disclosed in this thread?

I ask the above question because you asked me if it was valid when the rules have been discussed in details.

Thus, you should already know if it was valid or not.

With that said, I couldn't determine via your chart so I open up both my NDX.X chart and the Nasdaq Composite Index chart...both as a little different in the data in comparison to your chart.

Data vendor differences

Not valid on the NDX.X chart but it is valid on the Nasdaq Composite Index chart.

Thus, trade in either the Emini NQ or the QQQQ exchange traded fund via what had occurred in the Nasdaq Composite Index.

Also, since the start of the thread (July 2005) there has been more up months in comparison to down months.

Yet, its visually easier to see Bullish White Hammer patterns in comparison to the other patterns discussed in this thread.

However, they are also the easiest to make recognition mistakes due to the fact that there are +12 different types and most aren't worth risking a single penny on them.

In this thread I've discussed one that merits a trade whenever it appears as long as you understand the market cause of the day prior to the appearance of a pattern signal.

If you don't understand the price action...pattern signals that appear should be ignored or traded with a reduced position size.

Simply, don't use Japanese Candlestick pattern analysis to tell you what the market is doing...we need to know that prior to any appearance of a pattern.

Therefore, use candlestick patterns as a confirmation tool to what we think or know is occurring in the price action.

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

Thank you for your helpful response. Unfortunately I did not make matters clear: my query related to the Bullish Dark Hammer @ 13.20 [01.20 pm] approximately.

My 'rules' for a Bullish Dark Hammer are as follows:

L < previous 3 Ls
C-L>O-C>H-O
3 previous lines must contain @ least one dark one with a low > O of hammer
Tail of hammer > each of previous tails
No white WRB in previous 3 lines
Next bar must have C > O [white line]
If dark WRB in previous 3 lines then the three preceding tails must be less than tail of hammer

Thanks again,


John G
 
Quote from jeg:

Mark,

Thank you for your helpful response. Unfortunately I did not make matters clear: my query related to the Bullish Dark Hammer @ 13.20 [01.20 pm] approximately.

My 'rules' for a Bullish Dark Hammer are as follows:

L < previous 3 Ls
C-L>O-C>H-O
3 previous lines must contain @ least one dark one with a low > O of hammer
Tail of hammer > each of previous tails
No white WRB in previous 3 lines
Next bar must have C > O [white line]
If dark WRB in previous 3 lines then the three preceding tails must be less than tail of hammer

Thanks again,


John G
More...

Hi John,

Thanks for the clarification and I'll let you figure out why that Bullish Dark Hammer (BDH) on your charts is not valid via what I've stated in this thread...

Something that has been mention many many times in this thread about the particular sub-group of a Bullish Dark Hammer pattern being discussed in this thread (commentary about it will be posted last).

However, hopefully you already knew that and that your commentary above with the words my rules was as if you were saying you changed the rules or got rid of some of the rules.

With that said, instead of reposting the direct links from this thread to the rules I personally use...

I'll repost them again along with using your commentary to correlate with what has already been stated in this thread.

I'll then use this particular post as the key reference discussion about the Bullish Dark Hammer pattern for any future conversations about this pattern and the specific sub-group I'm discussing.

In addition, I want you to use my earlier posted chart in this thread as a reference chart:

http://www.elitetrader.com/vb/attachment.php?s=&postid=840557

You said...

L < previous 3 Ls

I said...

* Low of Dark Line (c2) < Lows of the prior three intervals (c3, c4 and c5)

You said...

C-L>O-C>H-O

I said

* Dark Line (c2) requirements...

Lower Shadow (c2) > Body (c2)
Body (c2) > Upper Shadow (c2)
Lower Shadow (c2) > Body (c2) + Upper Shadow (c2)

You said...

3 previous lines must contain @ least one dark one with a low > O of hammer

I said...

Yes, that is represented by the price action of c2 and c3.

However, your stated rule correlates with something I said about the Bullish White Hammer pattern.

You said...

Tail of hammer > each of previous tails

I said...

* Long Lower Shadow of the Dark Line (c2) must have more depth (longer) than the lower shadows of the prior three intervals (c3, c4 and c5).

However, if there's a Dark WRB among the prior three intervals...

Long Lower Shadow of the Dark Line (c2) must have more depth (longer) than the lower shadows of the three intervals that occurred before the Dark WRB.

You said...

No white WRB in previous 3 lines

I said...

True as shown in all the charts about the Bullish Dark Hammer pattern in this thread I've posted and a few charts posted by others.

You said...

Next bar must have C > O [white line]

I said...

* White Line (c1) is a White WRB that has a Body > Bodies of the prior three intervals (c2, c3 and c4).

However, if c3 or c4 is a Dark WRB...

Do not compare the body of the White Line (c1) to the body of the Dark WRB.

Instead, the body of the White Line (c1) must have more depth (longer) than the bodies of the three intervals that occurred before the Dark WRB.

You said...

If dark WRB in previous 3 lines then the three preceding tails must be less than tail of hammer

I said...

Actually, your statement should correlate with your earlier rule via being part of that rule...

Tail of hammer > each of previous tails

Here's what you missed and it's the most important rule to exploit the change in supply/demand and its been stated many times in this thread that its the most important rule.

This particular sub-group of the Bullish Dark Hammer pattern has a engulfing rule involving c1 and c3 that confirms the change in supply/demand in the price action of c2.

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

Chart must show Close of White Line (c1) > Open of Dark Line (c3) and that Close of Dark Line (c3) > or = Open of Dark Hammer Line (c2).

You've also forgotten to mention the following rule that I stated a few times in this thread:

* Close of White Line (c1) must be < or = Highest High among the prior three intervals (c2, c3 and c4)

Not mention or I can't remember if I mentioned it...

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

That rule helps in defining the engulfing price action involving c1 and c3.

Here are links to a few of those charts I've posted in this thread out of many:

Bullish Dark Hammer pattern as a Trend Reversal Signal...

http://www.elitetrader.com/vb/attachment.php?s=&postid=819656

http://www.elitetrader.com/vb/attachment.php?s=&postid=801581

http://www.elitetrader.com/vb/attachment.php?s=&postid=803412

Bullish Dark Hammer pattern as a Trend Continuation Signal...

http://www.elitetrader.com/vb/attachment.php?s=&postid=802602

Once again, the key to this pattern is the White WRB (c1) represents demand.

Dark Line (c2) represents a change in supply/demand via its interaction with the prior intervals.

The engulfing aspect involving White WRB (c1) and the Dark Line (c3) confirms that demand is increasing along with confirming that there was a change from supply to demand.

Not discussed before is that depending upon the type of contraction and expansion in the prior intervals before the White WRB (c1)...

The White WRB (c1) represents a volatility spike especially if there's confirmation in the Times & Sales via large size prints along with an increased pace in all the prints (small and large) in comparison to the prior intervals.

Anyways, there are a few more rules to this pattern but I will not discuss them (as mentioned a few times earlier in this thread) until I'm sure the most important rules are not being changed or ignored.

Simply, I've provided some pieces to the puzzle and if they can't be placed correctly...

I'll hold back on revealing the rest of the puzzle even though what's stated so far will improve your trading and understanding of Bullish Dark Hammer patterns.

Last of all, this pattern is not to intended to be used for counter-trend trading.

It's strictly for use as either trend reversal or trend continuation trading.

See earlier comments in thread about the difference between counter-trend, trend reversal and trend continuation signals.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Just a quick follow-up to my prior post.

You said...

3 previous lines must contain @ least one dark one with a low > O of hammer

To be specific it should state the following to prevent getting the Bullish White Hammer pattern confused with the Bullish Dark Hammer pattern:

Bullish White Hammer pattern...

3 previous lines must contain @ least one dark one with a Low > Open of White Hammer Line

Bullish Dark Hammer pattern...

3 previous lines must contain @ least one dark one with a Low > Close of the Dark Hammer Line

Also, I had said the following about the Dark Hammer Line (c2)...

Lower Shadow (c2) > Body (c2)
Body (c2) > Upper Shadow (c2)
Lower Shadow (c2) > Body (c2) + Upper Shadow (c2)

The above should have that its ok for the Body (c2) to be equal to the Upper Shadow (c2) if the Lower Shadow is 3x greater than the Body (c2) + Upper Shadow (c2).

I've been using that modification for several months now.

Also, every candlestick pattern is still the same price action on Bar Charts.

Simply, these patterns can be used on Candlestick Charts or Bar Charts.

However, I'm faster in my visual analysis on candlestick charts in comparison to my visual analysis via bar charts.

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

Many, many thanks for going to such a great deal of trouble with your extremely helpful & informative replies.

I'll try to do better next time.

John G
 
Quote from jeg:

Mark,

Many, many thanks for going to such a great deal of trouble with your extremely helpful & informative replies.

I'll try to do better next time.

John G
More...

Hi John,

Your welcome.

Hopefully we'll see more participation in this thread from others that trade Hammer patterns (white, dark or inverted) that has positive results or negative results...

Explaining with details what exactly (some details with chart examples) they are doing or did.

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