Trading Hammers (revisited)

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Quote from sunnyskies:

I'm studying them. Meanwhile, I got a concern about the first chart listed. It seems that you posted it as a valid pattern while one of the rules seems to be violated. Check out the picture.

http://www.elitetrader.com/vb/attachment.php?s=&postid=832245
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It's a valid pattern.

You probably wrote the rule down incorrectly after reading it...

http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880&perpage=5&pagenumber=35

The key in that quote is underlined so you can see it more clearly this time.

Also, don't forget...that rule only applies to the sub-group reversal signal and not the sub-group continuation signal of the Bearish Dark Inverted Hammer patterns.

Quote from NihabaAshi:

08-29-05 10:12 PM

...another criteria is the following...

* Any intervals between the white WRB and Dark Inverted Hammer...

If the intervals have a long lower shadow...that long lower shadow must not test (equal or less than) the Open of the white WRB.

In your chart example...the interval between the white WRB 2 and the Dark Inverted Hammer had a long lower shadow and it tested the Open of the white WRB 2.

Therefore, its not a valid trade and its a trade that has found some support...

Enough support to possibly encourage buyers to step to the plate and drive prices higher.

Thus, the long lower shadow that bounced off its own lows of its interval and at the same time it bounces off the Open of a white WRB...

Not a good time for Shorts to be hanging around (pun intended).

However, the criteria about the long lower shadow that's not allowed to test the Open of the white WRB...

Only applies to the sub-group reversal signal and not to the sub-group continuation signal...

NihabaAshi
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Quote from sunnyskies:

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

I don't understand why the Dark Inv Hammer's (DIH)'s high is not higher than highs of 3 previous candles as our rules demand ?
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The rule states for the sub-group reversal signal of the Bearish Dark Inverted Hammer...

* High of the Dark Inverted Hammer > High of the White WRB

I never wrote higher than the prior three intervals that occurred before the Dark Inverted Hammer.

Further, I'm just guessing that you reversed one of the rules for the Bullish White Hammer pattern that states the following:

* Low < Low of the prior three intervals

By applying it to the Bearish Dark Inverted Hammer as the following:

* High > High of the prior three intervals

Once again...that is not a rule for the Bearish Dark Inverted Hammer.

Also, the above criteria (High of Dark Inverted Hammer > High of White WRB) does not apply to the continuation signal sub-group and only applies to the reversal signal sub-group.

NihabaAshi
 
Yes, you guessed right. I thought that if something is a rule for white hammer then its also a rule for dark inverted hammer. so they're not symmetrical? the market is not symmetrical?


Quote from NihabaAshi:

The rule states for the sub-group reversal signal of the Bearish Dark Inverted Hammer...

* High of the Dark Inverted Hammer > High of the White WRB

I never wrote higher than the prior three intervals that occurred before the Dark Inverted Hammer.

Further, I'm just guessing that you reversed one of the rules for the Bullish White Hammer pattern that states the following:

* Low < Low of the prior three intervals

By applying it to the Bearish Dark Inverted Hammer as the following:

* High > High of the prior three intervals

Once again...that is not a rule for the Bearish Dark Inverted Hammer.

Also, the above criteria (High of Dark Inverted Hammer > High of White WRB) does not apply to the continuation signal sub-group and only applies to the reversal signal sub-group.

NihabaAshi
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Yea, I misinterepreted the rule. I thought the LS of the DIH should be lower than the O of the most recent white WRB. It looks like you meant that it has to be higher.

Quote from NihabaAshi:

It's a valid pattern.

You probably wrote the rule down incorrectly after reading it...

http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880&perpage=5&pagenumber=35

The key in that quote is underlined so you can see it more clearly this time.

Also, don't forget...that rule only applies to the sub-group reversal signal and not the sub-group continuation signal of the Bearish Dark Inverted Hammer patterns.
More...
 
The upper shadow of the DIH, must "engulf" previous candle's Body. Correct?


Quote from NihabaAshi:

Hi sunnyskies,

Did you figure out the difference between how the dark inverted hammer long upper shadow on my charts interacted with the prior candlestick bodies in comparison to the long upper shadows on your charts of dark inverted hammers ???

NihabaAshi
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Quote from sunnyskies:

The upper shadow of the DIH, must "engulf" previous candle's Body. Correct?
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Almost correct...the following is a criteria:

Sub-group: Reversal Signal

* Long Upper Shadow of the Dark Inverted Hammer (DIH) must engulf the body of one of the prior three candlesticks.

Sub-group: Continuation Signal

* Long Upper Shadow of the Dark Inverted Hammer (DIH) must engulf the body of two of the prior three candlesticks.

The above was the main difference between my charts and your charts that I was trying to get you to see in the price action in my most recent replies to your question/chart about why a particular DIH had failed.

Now...let me define more clearly the term engulfing that involves the Long Upper Shadow in its relationship with the bodies of those prior intervals...

Although its different from the engulfing price action that involves one candlestick body in comparison to another candlestick body.

In addition, if the prior interval body is a white line...
Its Open > or = Open of the DIH

Its Close < or = High of the DIH.

If the prior interval body is a dark line...
It's Close > or = Open of the DIH.

Its Open < or = High of the DIH.

Shadows for the white line or dark line are unimportant as a criteria.

Yet, are important to determine how much resistance is occurring at/near the upper range of the Long Upper Shadow of the DIH.

Further, notice how I haven't said anything about a doji among those prior intervals.

They can occur among the prior intervals.

However, the engulfing must occur between the Long Upper Shadow of the DIH with a prior white line or a prior dark line.

Simply, I'm only concerced about a prior white line or dark line and its relationship to the Long Upper Shadow of the DIH.

NihabaAshi
 
Quote from sunnyskies:

Are we close to summarizing the rules for pattern subgroups discussed?
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Nope...not even close because very little discussion is occurring about the price action prior to the candlestick line and very little discussion about the bigger picture of the day that the candlestick line or pattern was involved that day.

That particular discussion is critical and tells me there's an understanding that candlesticks do not define the price action.

Also, I haven't even exceeded my 100 chart posting target as I mentioned before.

In addition, very little rule (criteria) posting by others in this thread...

Surely not all the viewers of this thread and all the traders I talk to via pm or email are trading without a trading plan (reason for the lack of discussion) as they trade Hammer patterns ???

Regardless...the rules already discussed are enough to encourage anyone to start forming their additional rules to complete a trading plan...

Then share their own perspective of Hammer trading.

More importantly, to show that a candlestick/hammer trader needs to go beyond the generic stuff they read in candlestick books to develop something that consistently works via understanding the price action that's being repeated over and over and over again (shown in the charts) without having to ask...why ???

Example...were you able to see that the long upper shadow of the Dark Inverted Hammer in your charts were not engulfing any of the bodies of the prior intervals in comparison to the engulfing that was being repeated again and again in my charts ???

Or did you have to review the thread discussion and find that rule (criteria) because I had talked about it ???

Thus, if you had to read about that rule and couldn't see it on your own in the price action after comparing your charts with my charts...

We aren't even close to summarizing the rules.

NihabaAshi
 
I guessed the difference almost right after comparing your charts and mine. Anyway, I'll watch the thread and will contribute what I can.
 
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