Trading Hammers (revisited)
- Thread starter NihabaAshi
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I've edited/annotated your chart with my own comments and will first talk about the price action that occurred prior to the Inverted Hammer Line involving volatility. The volatility spike (yellow highlighted on chart), when it first appeared was not important. However, as the price action went sideways, the volatility started contracting that's represented by the intervals being smaller along with staying within the range of that volatility spike interval.
Thus, the contracting volatility made that volatility spike and important price action in comparison to the volatility spike not being important when it first appeared.
Just as important, you should now see that the Inverted Hammer Line has most of its range within the range of that volatility spike interval and within the range of the contracting volatility. Simply, the inverted hammer line is also contracting volatility.
Therefore, the inverted hammer line on your chart is not a valid Short signal within the context of the prior volatility spike and contracting volatility. Thus, it's not that the hammer line had failed...it was not a valid trade signal in the first place. Therefore, if you were into statistics, you can't document it as failed because to say it had failed is to say it was valid...it was not valid.
Another way to look at this...there's a huge difference between hammer LINE versus hammer PATTERN. Don't try to analyze single LINES or single intervals because that means you'll be ignoring the price action prior to it...a price action that always contains very important information for you to determine if the LINE is a valid PATTERN (see other discussion about this by me in the early part of this thread).
In addition, I don't know where you had your stop at but the volatility spike interval after that inverted hammer line was a warning to get out because the overall price action had been making higher lows. Thus, volatility analysis is extremely useful in validating whatever trade signals you're using along with being useful in your stop/loss managment or profit targets.
Mark
(formerly known as NihabaAshi)
Thank you for your answer,
Ive read the 25 first pages (and printed the charts), but I needed your hints now on this.
You re right my question was : is it a valid hammer line.
About price action, I know I have a lot to learn, it seems it is a world with NO limit, could you give me the name of a thread, interesting book or website I could begin with ?
NihabaAshi was a nice name, welcome wrbtrader !
Ive read the 25 first pages (and printed the charts), but I needed your hints now on this.
You re right my question was : is it a valid hammer line.
About price action, I know I have a lot to learn, it seems it is a world with NO limit, could you give me the name of a thread, interesting book or website I could begin with ?
NihabaAshi was a nice name, welcome wrbtrader !
Most of the material out there involving Japanese Candlesticks is overhyped, exaggeration or dictionary like terms without analysis of the price action the pattern signals are occurring within.
Best to use google and do an in-depth search for whatever you want to combine with Japanese Candlesticks. Also, many traders like you have asked similar like question and I always recommend they start a thread on the topic to ask for trading tips, hints, clues et cetera here at Elitetrader.com and other forums. Unfortunately, most don't and go the I don't need any help approach.
Simply, nobody is going to knock on your door...you have to start threads at forums on topics involving Japanese Candlestick Analysis, Volatility Analysis, Price Action Analysis, Supply/Demand Analysis, Support/Resistance Analysis and then piece it all together from the conversations.
Last of all, don't go the route of computer codes because profitable traders using Japanese Candlesticks aren't using codes. They know that their success involves many variables. Thus, it's part art/part science to them. Further, codes don't allow you to learn and understand the price action nor to coders care about such.
Mark
I think I will start studying Nial Fuller's website, is it worth reading (for price action) ? I almost sure i've seen some of his charts in a thread on ET.
http://www.learntotradethemarket.com/forex-trading-commentary/
http://www.learntotradethemarket.com/forex-trading-commentary/
You got to be careful...there's a difference between learning to understand the price action versus price action trade signals.
Thus, I don't know anything about his trade signals other than meeting a few guys on twitter that saids it doesn't work and a few others that say it works. Nothing new about that...you'll here that for any method. Yet, after probing them about their understanding of the price actionthan with any trade signal method...they knew very little.
In contrast, if you want to understand the price action prior to the appearance of any trade signals (e.g. candlestick patterns, pin bar, gartley, breakout or whatever)...just because you learn the trade signals doesn't imply you'll learn how to understand the price action those trades are being signaled within.
Thus, that's what supply/demand analysis or similar like attempts to do. Teach that understanding of the price action. However, supply/demand is not a trade signal although many trade signal methods out there that uses elements of supply/demand. Therefore, if you're looking for trade signals involving price action...hundreds of methods out there. Yet, if you're looking for to understand the price action you're trading...do that before getting involved in an particular trade signal.
Last of all, this thread is about Japanese Candlestick hammer trade signals. If you want to learn another trade signal...go straight to those here at ET using his methods. They currently have an active thread in the Strategy Trading section here at ET @ http://www.elitetrader.com/vb/showthread.php?threadid=186388
Also, forexfactory.com and babypips.com has more in-depth information about that method you're interested in.
Mark
Here's a chart (still valid) that I posted recently in the past. I'm not bias towards any support or resistance area until an actual trade signal appears. If no hammer pattern signals or anything else I use doesn't appear in those areas highlighted on the below chart...nothing to do.
http://www.elitetrader.com/vb/attachment.php?s=&postid=2678837
Note: Chart applicable for Forex EurUsd currency, Eurofx 6E futures and the U.S. Dollar Index (inverst price action).
Mark
Just an update after a question about such that went unanswered elsewhere.
The above quote is back in 2006 and I no longer decrease my position size as such in reference to hammer patterns or the long shadow candlestick family occurring within increasing volatility. Thus, it's now the opposite for me since 2008 especially confirmed by the fall of 2008 when volatility helped produced big profits via any method that's volatility base.
Therefore, as long we have that dark cloud hanging of the global economies, I've been increasing my position size on average on high volatility trading days, increasing volatility trading days or days where I expect to see a big change in volatility during specific time periods of the trading day. Hammer patterns are very sensitive to changes in volatility. Thus, one could say that the reliability of hammer patterns changes dramatically as volatility changes.
Thus, my position size management is now correlated with changes in volatility.
Mark
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