Trading Hammers (revisited)

[NihabaAshi]

Quote from sunnyskies:

I'm now concentrating on FOREX. And you said that volume is one of the factors that determine whther a line is a valid pattern signal or not. FOREX doesn't really have volume. So do you think this fact would severely hinder the identification of high probability patterns or not?

Hi sunnyskies,

Got your pm...thanx.

Yes...volume is a factor in some patterns I trade but not in the Hammer sub-groups I'm discussing in this thread.

However, I do know its a problem for those that use volume as a key component in their trading methodology (stocks, futures et cetera) and then they switch over to Forex that has no volume.

How does a volume dependent trader apply his/her trade methodology to Forex Currencies ???

WRB's (wide range bodies) Analysis.

WRB's are equal to volume spikes or increasing volume.

Thus, whenever you see a WRB...there's usually an increased in volume in comparison to the prior intervals.

Knowing such allows visualization of volume in trading instruments that don't have volume.

Therefore, if volume was a critical component of somones methodology prior to switching over to Forex...

I recommend WRB analysis.

However, this is beyond the scope of this Hammer thread and I will not discuss such in this thread.

Yet, to learn and/or research what I've said about WRB analysis and Forex Currencies...

Side by side...setup a EuroFX EC (it has volume) chart next to Forex EurUsd chart and watch them in realtime along with doing live-recordings for more critical analysis.

Without the live-recordings...don't bother researching this because the live-recordings are critical in the learning process of this and it needs to be done on your own because you already have a your own personal interpretation of analyzing volume.

EuroFX and Forex EurUsd has almost the same price action.

Hindsight charts are ok but may be too difficult for most to develop an understanding of WRB analysis.

I will answer your prior questions later.

NihabaAshi

 

[sunnyskies]

5min. Depends on how many valid hammer signals show up.

Quote from LoosenUp:

Hi sunnyskies,

What time frame charts do you use in trading hammers in forex? How many trades do you make per day?

Thanks

 

[gummy]

NihabaAshi:
Is it possible to describe a "hammer" which you would act on ... in twenty words or less?

I know! I know! I should read the last jillion posts, but I'm too old fer that ... and I need an example for this.

If it ain't worth your bother, that's okay.
I'll just start on those jillion posts

 

[sunnyskies]

When you were looking for support (long LowerShadow), why did you look on the 10min and not 5min?

Quote from NihabaAshi:

As you probably already know via seeing me discuss it dozens of times here at ET...

I don't use nor recommend the use of fixed initial stop/loss protection.

What I mean is this...many traders use fixed stops based upon whatever reasons.

Example is 1.00 point stop in ES.

No matter what time of day and no matter what type of trading day it is...

They are using a 1.00 point stop in ES.

The flaw with this is that a fixed stop assumes the price action is always the same...from one trading day to the next.

This is far from the truth.

The market (it's price action) and the reasons behind the price action is different every trading day.

That reason alone is why I use initial stop/loss protection based upon current price action at the time of the trade signal or at the time of the entry signal.

There are many ways of doing this that's been discussed by others at ET.

Here's one particular way I do such...

First I decide what is the key support level (a specific price) below the closing price of the Hammer Line.

In that particular price action for the ES chart in question...

I changed the 5min interval to a 10min interval to look for any prior long lower shadows that hadn't been filled in by the price action that followed it.

Had I not found one on the 10min chart...I would have gone up to the next interval...15min and so on until I found a long lower shadow that had not had its area filled in by the price action that followed that particular interval.

In the ES chart...I found one on the 10min chart and it occurred back on July 21st via the 10min interval that opened at 1450pm est an closed at 1500pm est.

The low of that interval is 1228.00

I like to place my stop 1-2 ticks below the support price I find.

In this case for ES...1227.50

As I mentioned earlier in this thread...

If the stop/loss protection is too much for me to bite on...

I either don't take the trade or I reduce my contract size to a level where I have suitable risk control.

That 1227.50 would have been a suitable risk for me in that particular price action.

Although you didn't answer my prior question...

Here are my questions for you (please don't ignore it)...

* What are your trading instruments ???

* Did you see any Hammer Lines today in your trading instrument or on the day you choose to respond to this question ???

NihabaAshi

 

[sunnyskies]

Wasn't this hammer pattern in a range, and you advice against trading candles in a range?

Quote from NihabaAshi:

July 29th Friday

Eurex Equity Index Derivative - DAX

Bullish White Hammer Pattern

Example of converting a profitable day trade via scaling out some contracts at a profit and letting it ride on a remainder as a swing trade.

NihabaAshi

 

[sunnyskies]

NA, why wouldn't you trade this one?

Quote from jasonbraswell:

What about this one, which showed also showed up today on the ER2? Nice volume, sitting atop support, etc.

Even though the body was equal to the upper shadow, as opposed to larger, would you have considered that acceptable in real time in light of the rest of the setup?

 

[sunnyskies]

I understand the white hammers discussed here can be in the context of 1) trend reversal up 2) trend continuation up.

I also understand what trend reversal is. But I do not understand how countertrend trading is different to trend reversal. Does it look different? What makes it different? Are we even discussing countertrend trading with white hammers here? As far as I understand we're only discussing white hammers in context of trend reversal and trend continuation UP. Where does "countertrend" trading come into this?

Quote from NihabaAshi:

Someone asked me to catagorize the Hammer patterns I'm discussing in this thread eventhough others may be discussing a completely different type of Hammer pattern.

In this thread I've been discussing and posting charts of three particular types of Hammer patterns and their sub-groups (just a few):

* A particular type of White Hammer pattern that involves bullish trend reversals and bullish trend continuation price action.

It's sub-groups...

Bullish trend reversal:

http://www.elitetrader.com/vb/attachment.php?s=&postid=800269

http://www.elitetrader.com/vb/attachment.php?s=&postid=804528

http://www.elitetrader.com/vb/attachment.php?s=&postid=806880

Bullish trend continuation:

http://www.elitetrader.com/vb/attachment.php?s=&postid=800696

* A particular type of Dark Hammer pattern that involves bullish trend reversals and bullish trend continuation price action.

It's sub-groups...

Bullish trend reversal:

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

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

Bullish trend continuation:

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

* A particular type of Dark Inverted Hammer pattern that involves bearish trend reversals and bearish trend continuation price action.

It's sub-groups...

Bearish trend reversal that occurs as a failed counter-thrust:

http://www.elitetrader.com/vb/attachment.php?s=&postid=806171

Bearish trend reversal that occurs as counter-trend trading:

http://www.elitetrader.com/vb/attachment.php?s=&postid=805475

Bearish trend continuation:

http://www.elitetrader.com/vb/attachment.php?s=&postid=812656

Via the above as you can see...

There are many types of Hammer sub-groups and is the reason alone why I tell traders that are new to Japanese Candlesticks or struggling in their trading while trying to interpret too many different type of candlestick patterns...

Just concentrate on the Hammer patterns until your consistently profitable via such prior to trying to learn other candlestick patterns.

It's also the same reason why I know a few traders that only trade Hammers because they have plenty of different sub-groups for different types of market conditions that allows them to do such type of trading...

Especially when trading a few different types of trading instruments and following a few different chart intervals.

However, these types of traders are very experience and understand that you don't need to know every candlestick pattern (dojis, stars, engulfing, harami, gaps, crows et cetera) to be actively trading.

In fact, as you learn more about Hammers...you'll begin to see that its price action can be involved in all those other candlestick patterns as multi-candlestick signals.

You should also see above via the Hammer charts that I'm showing that there's a difference between trend reversal trading and counter-trend trading.

Trend reversal trading to me means that the current trend has changed and there's a shift in supply/demand.

Counter-trend trading to me means that the current trend is showing signs of exhaustion (trying to catch its second wind sort'uv speak) and there's no confirmation of a shift in supply/demand eventhough its a trade signal.

Last of all, as a reminder...if you post a chart of a Hammer pattern...

Although it may not be a valid pattern signal via what I'm discussing via my own charts...

Your chart may be a valid pattern signal via another trader's perspective.

Hopefully, that other trader will explain why that valid pattern signal fail (loss) or was successful (profit).

NihabaAshi

 

[sunnyskies]

This is also range trading and you recommend against that?

Quote from NihabaAshi:

August 18th Thursday

CME EuroFX - EC

Bullish Dark Hammer Pattern

The chart shows very shallow profit targets.

It's a shame because that's a picture perfect setup.

NihabaAshi

 

[sunnyskies]

A bit unclear on the rules described here. Let me summarize to verify my understanding:

1) If one of candles prior to the white hammer is WRB then there's an additional rule: the LS (lowershadow) of hammer should be longer than LSs of 3 candles prior to WRB

2) LS of white hammer should be greater than bodies of 3 prior candles.

Correct?

Quote from NihabaAshi:

August 19th Friday

Eurex Derivative - DAX

Bullish White Hammer pattern
sub-group (bullish reversal)
-------------
You should notice in all the Bullish White Hammer (bullish reversal) pattern charts that I've posted so far...

All have a dark WRB among the prior three intervals.

When that happens...the lower shadow of the White Hammer Line must be measured (compared) to the price action of the three intervals prior to the dark WRB and to any intervals between the dark WRB and the White Hammer Line.

However, if there's no dark WRB among the prior three intervals (such is ok)...

The White Hammer Line long lower shadow is measured (compared) to the price action of the prior three intervals as represented in the attached chart below.

(Note: I'm comparing the long lower shadow to the bodies and lower shadows of the prior intervals except the dark WRB.)

By the way...in the attached chart there are also two Dark Inverted Hammer Lines that had their respected long upper shadow engulf the body of a prior interval...an interval that's between the white WRB and the Dark Inverted Hammer Line as required by one of the rules (as mentioned before).

Market was exhausted after all those rising white WRBs and one of those Dark Inverted Hammer lines traversed into a Bearish Dark Inverted Hammer (bearish reversal) pattern.

NihabaAshi

 

[sunnyskies]

OK. I'm closer to understanding your comments on charts 3 and 4. Maybe almost there. So...

The hammer in chart 3 is of a different subgroup. To me it looks like a Bullish White Hammer Pattern in the Trend Continuation context which is a subgroup that you do discuss. How is it not part of this subgroup?

And. Let me guess. The reason you would'nt execute on the two hammer signals in chart 4 is because... the next candle never traded below the close of the hammer, not giving you an opportunity for "price improvement". Correct?

And my question as to HOW you try to enter at a better price still stands.

Quote from NihabaAshi:

Chart 3h: Valid Hammer sub-group but not one of the sub-groups I'm discussing in this thread.

Chart 4h: Valid bullish hammer patterns being discussed by me in this thread.

Valid Pattern Signal: Yes
Valid Entry Signal: No

Thus, would have never had an opportunity to take those two trade signals (see my prior discussions with FuturesTrader71)...

http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880&perpage=1&pagenumber=104

NihabaAshi