Trading Hammers (revisited)

[akift]

Hi Mark,

Thanks for the missing rule in my code. Looks like it has been given after page 47.(I am preparing a kind of condensed summary document of this thread and i havent seen it upto page 47 but maybe I missed it. we are humans=error prone)

About coding versus manual identification. I am totally agree that just coding a pattern recognition doesnt make you a successful trader. I know that and also I agree with UNDERSTANDING the price action, understanding what is going on is very important. But I also believe (just as you noted in your reply) having a tool to automatically identify pattern will help the trader (at least me) . Wouldnt it be nice that your manually drawn S/R zones automatically drawn and when there is a hammer pattern pops up inside of it you would recognize it in splits of a second.


Definitions of the key change in supply demand zones are probably again at the last part of the thread so I havent read them yet. I will have a week abroad without toddler bugging so nights are mine to read this thread. But your replies (at least upto page 47) gave the impression that you really are a definitive person and you have very well defined rules for patterns. Actually this gave me the encouragement to code this white hammer pattern. And I am %99 sure that if you have definitive rules for the key change in supply/demand zones they can be coded too.

I believe if human eye and brain can recognize it we can code it too. We just need definitive rules to recognize them. When you ceased trying coding them, did you stop because it is impossible to put definitive rules for them or is it too hard to code them? I hope it is the latter now.

Ok sorry for making this long. Thanks again for pointing out the bug. Hopefully I can code the S/R zone then I will post charts which shows the zone and also the pattern. And then we will see the hitrate of the pattern inside the zones and outside the zones.

Again thank you for sharing this.

Akif,

 

[uexkuell]

Quote from akift:
I believe if human eye and brain can recognize it we can code it too.

Theoretically yes.

Just look where the efforts to program recognition of human faces are standing today.
The programs that try to do this have 100 thousands of lines code and they are still doing lousy jobs compared to a 3 year old human.

 

[akift]

I dont want to start a new (out of topic) discussion here so I will tell my opinion about the possibility of coding the zones after I finish reading the thread.

After I corrected my code with the missing rule now I see much MUCH lesser instance of the pattern. But I still have a lot of instances which can not make it to pt1. So just as NA said in his reply to my charts ıt looks like we need confirming S/R zones. I will delete my charts with missing rule and post a couple of these ones. Mark if you see something else is wrong in my pattern analysis please correct me.

Thanks again.

Akif,

P.S: Looks like I can not edit after 30 min of posting a message. So I am sorry about those wrong recognized charts, I cant remove them.

 

[wrbtrader]

Hi Akif,

The thread is still developing although old...it's dependent upon participation as stated early in the thread. Thus, it's not completed.

I am totally agree that just coding a pattern recognition doesnt make you a successful trader. I know that and also I agree with UNDERSTANDING the price action, understanding what is going on is very important. But I also believe (just as you noted in your reply) having a tool to automatically identify pattern will help the trader (at least me).

I don't know the order of key elements within your trading plan but the basics of my trading plan always involve the following in order...

Market Analysis --> Pattern Signal --> Trade Signal

Some aspect of my market analysis is via well defined rules while other aspects are very discretionary. It's those discretionary elements like key market events (e.g. economic calendar, breaking news, global economic event) that can't be coded. Simply, when it comes to coding that pattern signal...it's for identification purposes only and not for trading although it may be more to you if pattern signals have more weight in your trading plan.

If that sounds confusing...look at it this way, just because I get a valid pattern signal doesn't imply it's a valid trade and that more often than not has to do with the market analysis.

But your replies (at least upto page 47) gave the impression that you really are a definitive person and you have very well defined rules for patterns. Actually this gave me the encouragement to code this white hammer pattern. And I am %99 sure that if you have definitive rules for the key change in supply/demand zones they can be coded too.

Once again, don't get confused...I'm a discretionary trader and I do not recommend Japanese Candlestick Analysis all by itself.

When you ceased trying coding them, did you stop because it is impossible to put definitive rules for them or is it too hard to code them? I hope it is the latter now.

I stopped trying to code my market analysis because the discretionary elements involving key market events couldn't be coded. Simply, for trading purposes, only some things within my trading plan could be coded (e.g. pattern signals) while most of everything else could not. I just didn't have the resources to be able to auto input on the chart or data the key market events that are important to me while discarding others I don't care about.

Thus, it's much easier to just use an international economic calendar, real-time news feed and monitor closely how price action reacts to global economic events to form my market analysis prior to the appearance of any pattern signals...prior to the appearance of any trade signals.

Yet, admitting, coding does have one usefulness...identification of the pattern signal to speed up the process (if you're slow via manual) in trying to determine if the pattern signal is suitable for trading without "chasing" via what I sometimes refer to as "reaction lag". Myself, I'm not slow (don't need codes) and the few times when I do "chase" it is intentionally although once in awhile I do have reaction lag via over-analysis when having problems with my market analysis.

As for back-testing purposes...not suitable if the rest of the trading plan is ignored. Analogy - it's kind'uv like testing olives from a pizza to determine if the pizza itself is good while ignoring everything else that makes the pizza.

Mark

 

[akift]

Hi Mark,

Thanks for your reply. But I think I gave the wrong impression. I am not some kind of code-freak or an automatic trading expert advisor developer. What I believe just as you said the pattern signal and trading signal can be coded. The last 2 part of your trading plan. I know you dont need it but I would like to have them. And also I believe creating them is one of the best ways for me to learn them.

So I will post later when I finish reading the whole thread. I am sure some of the later pages will shed more light on dark areas (like the missing rule in my white hammer pattern recognition code. popped up 10 pager later:=))

Just a quick question. Upto the page 60 we are talking about 3 patterns here with different subgroups.
I hope I am not wrong:

1.Bullish White Hammer
2.Bullish Dark Hammer
3.Bearish Dark Inverted Hammer

And if I am not wrong in one of your posts you said you dont trade bullish white hammer! How about the other two?

Thanks.

Akif,

 

[akift]

Quote from akift:



And if I am not wrong in one of your posts you said you dont trade bullish white hammer! How about the other two?

I think I am so lost in this thread that I began to see illusions. You can ignore my above comment.

Akif,

 

[wrbtrader]

Quote from akift:

Hi Mark,

Thanks for your reply. But I think I gave the wrong impression. I am not some kind of code-freak or an automatic trading expert advisor developer. What I believe just as you said the pattern signal and trading signal can be coded. The last 2 part of your trading plan. I know you dont need it but I would like to have them. And also I believe creating them is one of the best ways for me to learn them.

So I will post later when I finish reading the whole thread. I am sure some of the later pages will shed more light on dark areas (like the missing rule in my white hammer pattern recognition code. popped up 10 pager later:=))

Just a quick question. Upto the page 60 we are talking about 3 patterns here with different subgroups.
I hope I am not wrong:

1.Bullish White Hammer
2.Bullish Dark Hammer
3.Bearish Dark Inverted Hammer

And if I am not wrong in one of your posts you said you dont trade bullish white hammer! How about the other two?

Thanks.

Akif,

I trade all three and each has their own sub-groups. In contrast, I don't trade all the sub-groups. Simply, I'm only discussing one of the sub-groups for the Bullish White Hammer, one sub-group for the Bullish Dark Hammer and one sub-group for the Bearish Dark Inverted Hammer.

I don't remember ever saying I don't trade the Bullish White Hammer pattern. However, I do remember saying I wouldn't trade most of the sub-groups in the Bullish White Hammer except for a few.

Overall, candlestick patterns are a small ratio of my trading plan in comparison to other trades. However, I have always used candlestick patterns and most of their sub-groups to identify price areas that represent key changes in supply/demand or s/r zones...I see more traders in recent years using them as such instead of as trade signals.

Thus, hammer patterns can be used for trade signals themselves and/or used to identify key price areas considering that hammer patterns are part of the Long Shadow family.

Quote from akift:

I think I am so lost in this thread that I began to see illusions. You can ignore my above comment.

Akif,

That's normal because there was good thread participation from others in the beginning. Thus, you're also absorbing their commentary, analysis or opinions.

Mark

 

[akift]

Hi again Mark,

Just another quick question. As you know we have a rule for BWH (Bullish White Hammer) which states:
-If all of the prior 3 intervals are dark candles with lower low closes then close of WHL(White Hammer Line) should be higher than the open of the prior dark interval.

When you say "prior 3 intervals" are you referring it as a concrete value or are you referring it to define the length of the pattern which leads to white hammer. To elaborate it a little bit more, think that third candle prior to the white hammer is a dark WRB then we have to include 3 more prior candles of that dark WRB to the pattern range. Now our pattern is 6 interval long. Now for the above rule are we looking at 3 consecutive dark candles again or 6(or whatever the pattern length) consecutive dark candles?

I am asking this to confirm that with addition of the missing rules my white hammer pattern recognition code is already very very picky.I made an analysis of GBPUSD 5 min chart for the whole month of March.Thinking forex is 24h market thats a lot of interval.(Rough calculation reveals 20 days*24 hours*60 min / 5 min = 5760 intervals roughly) And in that 5760 intervals my code found only 27 valid patterns!!!Do you think this is normal or am i interpreting something wrong again?

I will write down all the rules I used for this BWHP (Bullish White Hammer Pattern):

1-) O(wh) < C(wh)
2-) LS(wh) > B(wh) > US(wh)
3-) LS(wh) > B(wh) + US(wh)
4-) LS(wh) > 3 * US(wh)
5-) B(x) < LS(wh) [except B(x) is a dark WRB]
6-) L(x) > L(wh)
7-) LS(x) < LS(wh)
Between the three candles prior to the WH, there must be a Dark Line with its Low > O(wh)
9-) C(wh) <= Highest High(prior two candlestick lines)




Ok, after 7 hours of effort [capturing and annotating the images] I prepared all of the those March patterns recognized by code. And I have uploaded all those images to a repository site to able to reference all of them in this post.

You can reach all of the gallery from:

http://flickcabin.com/public/viewset/15681


Just a warning for anybody looking at my charts. As Mark explained earlier these charts doesnt take into account of market analysis. The aim of these charts are solely recognizing the valid BWH Pattern signals. Even if these patterns are valid, there might be occasions where we should not take those trades. In these charts my only aim is to recognize the pattern signal and if the market analysis (plus with S/R zones confirmation) allows me to take that trade, what would be my PT points? What would I do after I enter the trade? What would I do if price moves against me? This is what I tried to show in those charts.

I tried to put as much annotation as I could put in those images. As it is past 1 am i should go to sleep now.
I hope this time I pass the exam of BWHP. I have yet to move on to DH and DIH patterns. But it looks like I built the infrastructure now.

Akif,

 

[wrbtrader]

When you say "prior 3 intervals" are you referring it as a concrete value or are you referring it to define the length of the pattern which leads to white hammer. To elaborate it a little bit more, think that third candle prior to the white hammer is a dark WRB then we have to include 3 more prior candles of that dark WRB to the pattern range. Now our pattern is 6 interval long. Now for the above rule are we looking at 3 consecutive dark candles again or 6(or whatever the pattern length) consecutive dark candles?

If there's a Dark WRB amongst the prior 3 intervals...you'll only be looking at those prior 3 intervals and not the price action of the intervals before the Dark WRB if the 3 intervals before the white hammer line are dark intervals with lower closes (comparing the dark intervals to each other).

I am asking this to confirm that with addition of the missing rules my white hammer pattern recognition code is already very very picky.I made an analysis of GBPUSD 5 min chart for the whole month of March.Thinking forex is 24h market thats a lot of interval.(Rough calculation reveals 20 days*24 hours*60 min / 5 min = 5760 intervals roughly) And in that 5760 intervals my code found only 27 valid patterns!!!Do you think this is normal or am i interpreting something wrong again?

I don't know if that's normal or not considering I'm not doing any back testing nor coding of GBPUSD. Simply, I really can't help you with your coding because I don't code (I stopped about 10 years ago) nor do I recommend such for "trading purposes".

Ok, after 7 hours of effort [capturing and annotating the images] I prepared all of the those March patterns recognized by code. And I have uploaded all those images to a repository site to able to reference all of them in this post.

The only charts I like are the following because the bullish white hammer pattern occurred at the price action of a prior key change in supply/demand.

http://flickcabin.com/public/view/full/61846 (win)

http://flickcabin.com/public/view/full/61850 (loss)

With that said, here's a little bit about my trade management that's different from your annotations.

* If a profit target 1 (pt1) is reach...contingency plans are not valid because the minimum goal of the trade has been accomplished.

* If a pt1 is reach...I move my initial stop/loss management into a 1 tick/pip profit instead of breakeven because breakeven is a losing trade when I calculate the cost of trading and there's more to that than just commissions.

* pt1 < pt2 < pt3

In some of your charts you have pt3 < pt2

* profit targets are either key changes in supply/demand, volatility spikes as breakouts above/below contracting volatility or within the range of a prior key change in supply/demand price area. All my charts in this thread represents such.

* If I identify the price action as a trend continuation after pt1...I often increase my chart interval for a pt2 and pt3 (scaling out). However, more often than not, I only scale out in increasing volatility trading conditions. This wasn't an issue (volatility changes) many years ago when this thread on Hammers was started. Yet, trading conditions (volatility) has change dramatically since the summer of 2008 and because of such...changes in volatility now has much more of an impact in my trade management in comparison to many years ago.

By the way, I'm not suggesting you make changes to your trade management just because it's different from my own. Instead, you should stick with whatever keeps you discipline enough to consistently follow the rules.

Mark

 

[akift]

Thanks Mark.