Trading Hammers (revisited)

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Hi Kon,

This thread isn't about my trades. It was setup as a continuation thread from a older thread where traders were asking for help with losing trades or problematic trades via trading Japanese Candlestick Hammer patterns. Therefore, most of the charts were posted in response to questions in the thread, email or private message.

Simply, if you have problems in trading Hammer patterns...post annotated charts and ask questions.

As for my own trading of hammer patterns...their a small part of my trading plan and I just enjoy talking about them whenever someone has sincere questions or problems with trading hammer patterns.

Now to answer your question about that interval you see at 1300 hrs on that old chart...it's a hammer line but not a hammer pattern. I explain the difference between hammer lines versus hammer patterns in the earlier part of this thread.

As a reminder that was posted several times in this thread, Japanese Candlestick hammer patterns should not be used as a stand alone trade strategy nor do I recommend trying to use coded patterns because you won't be able to understand the price action you're trading. Simply, hammer patterns do not define the price action. Instead, you should already know if the price action is bullish, bearish or whatever prior to the appearance of any hammer patterns or any other type of trade signal. Thus, hammer patterns are best suited as a confirmation signal into something you already know.

You should check out today's CME EuroFX 6E futures 2min chart @ 0236am est. It's a valid Hammer pattern along with being an engulfing price action (double confirmation more reliable than single confirmation)...it was a retest of a recent key support area.

Mark


Quote from konviction:

Bump. I found this old ET jewel, and I thought I'd dust it off. :) One of the best price action threads here on ET. I challenge someone to find a better one.

I hope the OP continues to post his trades on here, and maybe other strategies he's learned sinse then .

ps Mark, is this a hammer on 13:00?.. http://www.elitetrader.com/vb/attachment.php?s=&postid=802602

Kon
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Hammer patterns (not lines) are more than just entry signals. They are s/r zones that represent key changes in supply/demand. In addition, they can be used to identify price areas where you can look for trade signals via whatever trade method you're using. Also, the s/r zone of a hammer pattern can be used as profit targets.

Chart Example @ http://clicky.me/9U8

Mark
 
Quote from maximillion:

thought share this. if I'm wrong correct me. may be another bounce in few more days...
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Looks like via your chart that you got some overhead resistance back on October 19th that's not that far above that Hammer pattern you recently saw.

Mark
 
Quote from JSSPMK:

Any thoughts on EUR weekly close? Certainly looks like a bearish continuation candle.

http://www.dormantrading.com/Trader...w&id=82&Itemid=71&sym=E6H0&type=CANDLE&data=W
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That dark (red) inverted hammer line (not yet a pattern) is within contracting volatility (orange highlight). Simply, it's currently unimportant and I would wait to see what develops after it within the next few weeks.

Green highlighted areas can be used for profit targets or to look for trade signals.

By the way, check out the bearish engulfing of the bearish inverted hammer pattern (purple highlighted)...statistically is reliable 78% on the EuroFX 6E futures the past 5 years when occuring within a key change in supply/demand price area on 2min, 5min, 15min, 60min and daily charts. Yet, if you study that price action carefully, you'll see other interesting things if you're into volatility analysis, triangle formations and global economic events.

Also, if you're curious about what is meant by triangle formation...I show on the chart a gray highlighted area of contracting volatility within a triangle formations that had intervals testing a prior key change in supply/demand price area. That key change in supply/demand just happen to coincide/involved with an inverted Head & Shoulders price pattern with the right shoulder late February 2006.

P.S. Many things on that chart that has nothing to do with Japanese Candlesticks but is critical to show how important it is to see the big picture (understanding the price action) prior to the appearance of any Hammer pattern. Thus, pattern signals all by themselves aren't reliable.

Mark



http://chart.ly/94vhy5
 
Mark, TY for replying, interesting information there.

Do you not think current weekly hammer (candle) has signs of continuation considering the fact that it was formed during the ECB conference week & also the Daily price action was a classic bear flag?

TY!
 
Quote from JSSPMK:

Mark, TY for replying, interesting information there.

Do you not think current weekly hammer (candle) has signs of continuation considering the fact that it was formed during the ECB conference week & also the Daily price action was a classic bear flag?

TY!
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Yes (look at your 15min chart) but that's only in [/b]hindsight[/b] because there was a strong intrady price movement downwards (continuation) in the Eurofx 6E futures or Forex EurUsd with a strong upward movement in the U.S. Dollar between 0430am - 0445am est early Tuesday morning through support area (Euro) or resistance area (U.S. Dollar).

That support broken on the intraday chart was a support level via a bullish white hammer pattern that had been established earlier between 0015am - 0030am est.

Next, still the 15min chart, another support level developed via back to back (consecutive) dark hammer lines (not a bullish pattern) between 1115am - 1145am est. It too was broken 2015pm - 2030pm est Tuesday via another strong direction price movement downwards. All the above levels establish by Hammer lines or patterns were broken via price reacting to economic event or speeches.

Will It Continue Further Down?

I don't know but the GBP info didn't help today around 0430am est which was also another bearish engulfing of a hammer line (look at your 5min chart). However, I do know we got some big economic info tomorrow and more speeches...so far...a nice volatile week producing strong price movements which should continue (the volatility) for the remainder of the week.

Just a reminder, the big movement was initiated by bearish engulfing price actions of a bearish inverted hammer pattern. Therefore, I would be looking for hammer lines being engulfed (bearish or bullish) or hammer lines/patterns having their support broken to establish confirmation for a trade positions in this bearish continuation price action since late November - early December 2009.

Those green highlighted levels on that prior chart I posted are excellent profit targets if you're Short. In contrast, if you're looking for Long positions, I wouldn't be looking for any until at least two key changes in supply/demand areas show up above to setup like magnets for at least a stall in the current strong price movement downwards.

Mark
 
Re Will it continue down?

I also see 1.4 as a rather obvious 1st target, I reckon it will slow down around there

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2705893>
 

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