Trading Hammers (revisited)

Status
Not open for further replies.
NihabaAshi,

Thank you for sharing your thoughts/rules on the various hammer patterns that you find reliable. Your teaching style is fantastic, as it makes the reader think as opposed to just listing rules. I trade the Eurex products, in particular the DAX and the Bund. I have 2 questions for you:

1. The entry signal for your valid BDH Pattern is after the subsequent white line has completed (engulfing C3) and you try to enter the market below the close of the white line (negating any chasing rules you have for the moment)?

2. For PT1 on a valid White Hammer Pattern, can it be on a WRB that immediately forms following the White Hammer Line? That is, on the very next interval?

I am trying to alter my trading plan from scalping (pit trading) to emcompass the larger moves that occur.

The attached chart was from the DAX today. I wanted to take the White Hammer 1 trade, but the news today was on Iran (their nuclear threat), the price of Oil going up, and Greenspan mentioned 'recession' in a speech today. The move did not make sense to me, so I stayed on the sidelines.

After annotating the chart, I realized WH2 does meet the criteria for a valid White Hammer pattern as discussed by you in this thread. The long lower shadow of WH = the lower shadow of the 3rd prior interval. Also, I did not see a valid pattern on the Dax Cash, Euro Stoxx, nor the SMI.

Any comment you have on the chart and my assessment of the larger picture is much appreciated.
 

Attachments

Quote from Xavier Cougat:

NihabaAshi,

Thank you for sharing your thoughts/rules on the various hammer patterns that you find reliable. Your teaching style is fantastic, as it makes the reader think as opposed to just listing rules. I trade the Eurex products, in particular the DAX and the Bund. I have 2 questions for you:

1. The entry signal for your valid BDH Pattern is after the subsequent white line has completed (engulfing C3) and you try to enter the market below the close of the white line (negating any chasing rules you have for the moment)?

2. For PT1 on a valid White Hammer Pattern, can it be on a WRB that immediately forms following the White Hammer Line? That is, on the very next interval?

I am trying to alter my trading plan from scalping (pit trading) to emcompass the larger moves that occur.

The attached chart was from the DAX today. I wanted to take the White Hammer 1 trade, but the news today was on Iran (their nuclear threat), the price of Oil going up, and Greenspan mentioned 'recession' in a speech today. The move did not make sense to me, so I stayed on the sidelines.

After annotating the chart, I realized WH2 does meet the criteria for a valid White Hammer pattern as discussed by you in this thread. The long lower shadow of WH = the lower shadow of the 3rd prior interval. Also, I did not see a valid pattern on the Dax Cash, Euro Stoxx, nor the SMI.

Any comment you have on the chart and my assessment of the larger picture is much appreciated.
More...

Hi Xavier Cougat,

Answer #1:

I usually chase no more than 2 ticks.

However, the trades that are a chaser, I manage my increased risk exposure via reducing my position size along with keeping the same WRB pt level as if I enter the trade properly.

Further, when I enter a trade beyond my 2 tick rule...I list the trade in my trade notes as a trade outside of my trading plan.

Thus, when I do statistical work on my methodology...it's not included in the data for trades within my trading plan.

Instead, I include it in the statistical data for trades outside my trading plan.

This allows me to do a comparison of my trading plan versus my intuition trades along with helping me understand many psychological aspects of my trading.

Answer #2:

Yes, if the first interval after a valid pattern signal can be a WRB pt1 even if its also the same interval you enter the trade.

This has happen to me a few times and usually occurs as a volatility spike in which I was lucky enough to enter the trade and interval prior to the volatility spike along with prior to the interval completing itself.

As for the DAX today, I saw the formation of that valid BWH you have annotated on your chart as White Hammer 1.

Yep, the one you call White Hammer 2 is not a valid pattern signal.

Therefore, the White Hammer 1 would have only resulted as a WRB pt1 trade.

As for the story behind the price action...

Iran news is price into the market. Thus, until there's new rhetoric involving Iran that becomes talk of the town...I'm currently not putting much weight on news concerning Iran.

Also, I see the price action as continuation.

Overall, if your new to trading Hammers, I like your decision to ignore the valid signal considering it had no support (reason) for such a move.

Yet, if you are a experience and profitable trader...

Would have been worth the risk via a reduced position size to better manage the risk exposure.

P.S. Check out the Eurex BUND 60min chart for Friday.

A nice looking valid Bullish White Hammer pattern that's already at a WRB pt4 level in profits for swing traders of the BUND.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Quote from Xavier Cougat:

...

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

1. The entry signal for your valid BDH Pattern is after the subsequent white line has completed (engulfing C3) and you try to enter the market below the close of the white line (negating any chasing rules you have for the moment)?...
More...

Hi Xavier Cougat,

Ok...

I'm now on the same page as you.

:cool:

The pattern signal for the BDH involves the White Confirmation Line (c1).

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

The entry signal must only occur in the first interval after the pattern signal.

I chase it no more than 2 ticks above the close of c1.

The Bullish Dark Hammer (BDH) pattern has a White WRB as a White Confirmation line c1 and is less forgiving when chasing it in comparison to the Bullish White Hammer (BWH) pattern.

However, lets pretend my position size was low (intentionally or accidentally)...

If the volatility dries up dramatically after the entry signal interval as it did in that above chart...

I'll use the pattern signal as a s/r zone and may ADD to the position on any Hammer lines that briefly test the s/r zone but still closed at a price less than my entry price.

This type of ADD is something I've been recently using as an additional contingency plan after a position size (under sized) problem.

It's been a very profitable contingency plan addition to my trading plan.

Mark
 
NihabaAshi,

That Bund chart was the next one I was going to post. I just wanted to discuss one chart at a time. You have given me/us so much information to absord throughout this thread. I also have some DAX charts that I will be posting soon.

I missed that particular trade because on the 3 min, 5 min and 15 min charts it does not show itself clearly. Only "blending" the 5 minute level in hindsight did it become visible. The 10 min chart does have that White Hammer Pattern. I will have to monitor 30 & 60 min charts, as well as daily charts for the 'over-all' picture.

I have annotated it with PT levels. I am trying to get a grasp on exit strategies via WRB analysis. One comment about PT 4, it only became a WRB on the high tick of that line. I understand that WRB analysis goes beyond the scope of this thread, but does it appear that I understand the WRB analysis as relating to PT levels (via your methodology)?

Thanks
 

Attachments

Quote from Xavier Cougat:

...I have annotated it with PT levels. I am trying to get a grasp on exit strategies via WRB analysis. One comment about PT 4, it only became a WRB on the high tick of that line. I understand that WRB analysis goes beyond the scope of this thread, but does it appear that I understand the WRB analysis as relating to PT levels (via your methodology)?

Thanks
More...

Yes, you have the basic understanding of profit targets via WRB Analysis.

The pt levels represent change in supply/demand and represent change in volatility.

I mentioned once or twice in this thread that after you reach a WRB pt1 and you think you caught the beginnings of a trend for what ever reasons...

Manage the WRB pt levels via a higher interval to help capture a bigger part of the trend.

For example, lets say your watching the 2min, 3min and 5min charts for a pattern signal.

You get a pattern signal and entry signal via the 2min chart.

WRB pt1 should always be via the same interval as your pattern/entry signal.

Yet, if you think you caught the beginnings of a trend.

Manage the WRB pt2 and higher via either the 3min or 5min chart interval.

However, this type of trade management should only be done once your experience with the price action of your trading instrument.

Further, don't manage WRB pt levels beyond pt1 via a chart interval your not use to monitoring.

WRB profit targets work well with other methods besides Japanese Candlesticks methods:

* Trend Reversal Methods

* Trend Following Methods

* Breakout Methods

* Volatility Methods

and many others.

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

First, just to thank you for starting this thread. Your approach to candlestick pattern analysis, trade management and performance improvement is very insightful.

I have read both this thread and the previous thread on hammer analysis. I tried to summarise the 'rules' for the three key candlestick patterns and WRB analysis as best I can.

Thought I would ask your view on the attachment. This is 6BH7 today(3/2/07 @10.58 GMT). This looks like a valid (your rules) Bullish Dark Hammer....or have I missed something. Perhaps the Open of c1 is not below the Close of c2...?

If it is a valid bdh how would you have managed the trade? I presume you would have reversed the position after the Dark WRB following the Dark Hammer. Perhaps you could elaborate on the entry.

Thx
 

Attachments

Quote from jimmyrey:

NihabaAhsi,

First, just to thank you for starting this thread. Your approach to candlestick pattern analysis, trade management and performance improvement is very insightful.

I have read both this thread and the previous thread on hammer analysis. I tried to summarise the 'rules' for the three key candlestick patterns and WRB analysis as best I can.

Thought I would ask your view on the attachment. This is 6BH7 today(3/2/07 @10.58 GMT). This looks like a valid (your rules) Bullish Dark Hammer....or have I missed something. Perhaps the Open of c1 is not below the Close of c2...?

If it is a valid bdh how would you have managed the trade? I presume you would have reversed the position after the Dark WRB following the Dark Hammer. Perhaps you could elaborate on the entry.

Thx
More...

Hi jimmyrey,

Thanks for the chart.

The Hammer Lines in this thread have the following qualities...

* Body (difference between Close and Open) is greater in length than the Upper Shadow

* Lower shadow is greater than the combination of the Body and Upper Shadow

* I tolerate an Upper Shadow (it's ok to have one).

Thus, your chart has an invalid Bullish Dark Hammer pattern via this discussion due to the fact the Upper Shadow > Body.

However, lets pretend it was valid.

The one particular contingency plan I've discussed in this thread is to reverse at the appearance of a Dark WRB only when the Dark WRB has a close within the range of long lower shadow (same is true for the Bullish White Hammer pattern).

The Dark WRB in your chart has a close outside (below) the range of the long lower shadow.

Thus, a signal to reverse the Long into a Short would not have occurred.

Therefore, had this been a valid Bullish Dark Hammer pattern the trade result would have been a losing trade position via the initial stop/loss protection being hit.

Something else, whenver you see a Long Lower Shadow that you immediately begin investigating as a possible pattern signal...

Always change the interval to a smaller interval because there may be a valid pattern signal on the smaller chart interval that allows for a better entry price.

Out of curiousity, is there another trading instrument with similar like price action as the Sterling Futures.

Also, the price action has a nice looking price drop from the left of the chart to the right of the chart.

Do you know what was theheadline news of the UK to cause a price drop like that???

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
when you talk about hammers, does that include the "opposite" i.e. shooting stars? I also commented extensively on hanging men candlesticks for the last 2 weeks before the drop this week, especially on $NYA chart. Those hanging men signals delivered unbelievably this week and i was very happy although it took much patience! http://lauristonletter.blogspot.com/
 
Quote from lauriston:

when you talk about hammers, does that include the "opposite" i.e. shooting stars? I also commented extensively on hanging men candlesticks for the last 2 weeks before the drop this week, especially on $NYA chart. Those hanging men signals delivered unbelievably this week and i was very happy although it took much patience! http://lauristonletter.blogspot.com/
More...

No...the inverse price action of a Hammer pattern is not reliable (shooting star) as a trend reversal signal...

Such was extensively discussed earlier in this thread.

The fact is that a Hammer pattern is intended to be used as a reversal signal...accordingly to many books.

In reality, it is dynamic as a trend reversal or a trend continuation signal.

Whearas a shooting star (completely different price action even if you invert a Hammer pattern) is intended to be a reversal signal...accordingly to many books.

In reality, it is dynamic as a trend exhaustion or a trend continuation signal.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Status
Not open for further replies.
Back
Top