Trading Hammers (revisited)

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September 20th Tuesday

Nasdaq 100 Trust - QQQQ

Bearish Dark Inverted Hammer Pattern
Sub-Group: continuation signal
Chart Interval: 10min

The key event was the FOMC announcement.

Most traders were looking for downside if there was a rate hike in the wake of Hurricane Katrina.

ETF-QQQQ started leaning towards that price decline when the continuation signal appeared about 1 1/2 hours after the morning price peak.

Note: One of the criteria I had posted earlier has a missing key word...I've highlighted that word to show where it is...

* Long Upper Shadow of Dark Inverted Hammer must have engulfed the Body of at least two of the prior three intervals between the White WRB and the Dark Inverted Hammer Line.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880&perpage=1&pagenumber=298

NihabaAshi
 

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I have been watching and reading the thread. I have looked at charts and the charts posted. I would like to take a stab at the rules/management and stop rules for this thread so far.

Im sorry If I get any wrong, I only read the thread twice.

Im not sure if it will copy my formating if not it should be ok.

Want to say to NA thanks for an excellent thread.

Reference :-

A line itself is just one interval (One Candle)

It alone cannot be use to make trade decisions eventhough many traders will attempt such and fail (losses) via thinking any Hammer line they see is a trade signal.

A pattern involves the line and involves the price action of other intervals prior to the line and sometimes involves the interval after the line.

The reference white means Close > Open of that particular interval.

The reference dark means Open > Close of that particular interval.

Candle Rules :-

Bullish White Hammers :-

* Low of white hammer line < lows of the prior three intervals.

* Depth (length) of long lower shadow of the white hammer line > depth (length) of the lower shadows of the prior three intervals.

* Long Lower Shadow of white hammer should be greater than bodies of 3 prior intervals

* The Body should be > Upper Shadow

* If one of previous 3 candles is a Red WRB then the Lower shadow of the hammer must be longer than the bodies of the 3 candles prior to the WRB

Bullish Dark Hammers :-

* Dark hammer line requires a white line in the first interval after the hammer line that engulfs the body

* Close of white line > Open of dark hammer line

* Body depth of white line > Body depth of dark hammer line

* The lower shadow must be greater than the candlestick body. (Of The hammer)

* The lower Candle Body must be greater than the upper shadow.

Inverted Bearish Dark Hammers :-

The lower shadow length < Body length

The Upper shadow length > Body Length

High of Dark Inverted Hammer > High of white WRB


* 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.

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

Sub-group: Reversal Signal

Long Upper Shadow of Dark Inverted Hammer must have engulfed the Body of at least one of the prior intervals between the White WRB and the Dark Inverted Hammer Line.

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

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

* If there are white candlestick lines (Close > Open) among the prior three intervals before the White WRB...

Close of the White Lines must be < Body mid-point of the White WRB.

* If there are dark candlestick lines (Open > Close) among the intervals between the White WRB and the Dark Inverted Hammer...

Close of Dark Inverted Hammer must be < Close of the most recent Dark Line to the Dark Inverted Hammer.

Sub-group: Continuation Signal

High of Dark Inverted Hammer < High of White WRB.

I mentioned recently that if that WRB upper shadow is too long...I will often use the following...

High of Dark Inverted Hammer < Close of White WRB.

* Long Upper Shadow of Dark Inverted Hammer must have engulfed the Body of at least two of the prior intervals between the White WRB and the Dark Inverted Hammer Line.

* There must be at least one dark candlestick line and one white candlestick line among the prior three candlesticks that occurred before the Dark Inverted Hammer line.

* Close of Dark Inverted Hammer must be < Close of the most recent Dark Line to the Dark Inverted Hammer.

Stop Rules :-

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.

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

Exits:-

If Long...profit targets are WRB's that occurs at a higher price above the Long.

If Short...profit targets are WRB's that occurs at a lower price below the Short.

WRB (wide range body) > Prior three bodies
 
Quote from Tellon:

...

Stop Rules:

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.

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

Exits:

If Long...profit targets are WRB's that occurs at a higher price above the Long.

If Short...profit targets are WRB's that occurs at a lower price below the Short.

WRB (wide range body) > Prior three bodies
More...

Hi Tellon,

Thanks for joining in on the discussion of Hammer Patterns.

First of all, I have not and will not reveal the exact rules of my initial stop/loss placement.

Therefore, what you stated as rules...

Those were small hints by me about my initial stop/loss placement.

The key to remember is that I do not place my stop in what I call the logical area of placing stops while trading Hammer Patterns...

* 1-2 ticks below the low of the long lower shadow or at the low (Hammers).

* 1-2 ticks above the high of the long upper shadow or at the high (Inverted Hammers).

That's an area that is susceptible for stop running (pick pocketing) and/or doesn't allow a trader enough reaction time to react to any contingency plans (reversing the position into the opposite direction).

Also, the above had no edge for me and is the reason why I stopped using them many years ago.

Yet, that doesn't mean it can't work for someone else that has a different approach than me in trading Hammer Patterns.

I also call this reaction lag and I've posted info here in this thread and in the past elsewhere at ET about how to prevent developing reaction lag while learning from hingsight charts...

http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880&perpage=1&pagenumber=109

http://www.elitetrader.com/vb/showthread.php?s=&threadid=44213&perpage=5&pagenumber=4

Reducing the reaction lag will also help understand the price action of the WRB Profit Targets.

NihabaAshi
 
September 23rd Friday

CME Emini - ES

Bullish White Hammer Pattern: Not Valid

Sub-Group: Had this been a valid pattern signal...its classification would have been continuation signal due to either the White Hammer Line or its prior price action occurring within the range of the key white WRB in that price upsurge.

Yet...this chart shows both the White Hammer Line and its prior price action being above the body of the key white WRB...

Once again...these are low reliable Hammer patterns.

(Note: White WRB's are not important in the Bullish White Hammer pattern reversal signal.)

Also, although I said this isn't a valid Hammer Pattern.

What I meant is the following:

* It's not reliable (reliablility so low its not worth the risk)

* It's not a pattern I trade anymore (stopped trading them many years ago)

* It's not one of the reliable Hammer patterns I'm discussing in this thread

With that said...this chart example needs to be discussed so that you'll know why I don't like this particular price action...

Understanding the price action.

I don't like the fact that the White Hammer Line closed above the highs of two of its prior three intervals...

After the below had occurred.

In addition, I don't like it that all the lows of the prior three intervals are less than the Open of the White Hammer Line...

Taking away the significance of the long lower shadow has less impact and implies there's not a shift in supply/demand to take this higher.

In fact, if you increase this 6min chart interval to either a 10min, 12min or 15min chart...

You can see either there's no long lower shadows to indicate any kind of temporary support has formed and the formation of any white lines amongst the strength of the dark lines...

I view it more as a trap for Longs that think this is going to go higher and retest the most recent price peak.

-------------

Therefore, here's the criteria to add to the Bullish White Hammer pattern check list:

* Among the three intervals before the White Hammer Line...

There must be a Dark Line with its Low > Open of the White Hammer Line.

-------------

I'll let you figure out the other criteria on your own that I revealed in this message post.

NihabaAshi
 

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Quote from LondonUSTrader:

I wonder if you get times when you can tell from watching the market so much that it is going higher or lower (market intuition so to speak), but don't quite get the exact entry signal in the candles what do you do? Leave it alone or sometimes chase it based on your gut feel.
More...

Just a follow-up to my last reply to you on this topic.

Sometimes if I get stopped out at breakeven after taking a valid Hammer Pattern trade...

I'll quickly lower my chart interval to see if there are any supporting Hammer patterns.

If there are any Hammer patterns on the lower chart interval...

I'll take the trade with a reduced position because its still within the residual price of the higher chart interval even if I need to chase the Hammer pattern on the lower chart interval while not violating my Entry Signal method on the higher chart interval.

NihabaAshi
 
Quote from sunnyskies:

http://www.elitetrader.com/vb/attachment.php?s=&postid=851576

loser
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Hey sunnyskies,

I've studied that particular type of Inverted Hammer your trading for about 8 years...

They are not reliable via the way your trying to trade them.

If your using mirror rules of the Bullish Hammer pattern...

Been there, done that...not reliable (not profitable).

I've already hinted in this thread an alternative (possibly more reliable) way of approaching those types of Inverted Hammers or Shooting Stars that you trade.

Here are some questions for you ???...

* If your not using mirror rules of the Bullish Hammer pattern...

What are your rules for trading Inverted Hammer patterns ???

If you don't want to tell me or would rather pm them to me...please let me know (reply).

* Do you get any winners via the same Inverted Hammer pattern and can you post chart examples of them the next time...if not...why not ???

* Do you follow any key economic resource while trading EurUsd prior to the U.S. markets opening ???

* Do you use any info from the U.S. Dollar Index (inverted price action of EurUsd) to help with your trading of the Inverted Hammers (you may have answered this question before) ???

NihabaAshi
 
Quote from sunnyskies:

loser
More...

It seems quite often the losers posted don't take into enough account of the 'big picture' and not just that isolated candlestick signal.

Also, I have found that the trade action after the signal is often critical to having a profitable edge in candlestick trading. Just my experience. I used to trade just the signal and had a lot of losers, until I started waiting for the candles after the signal to confirm the validity of the signal.

Let me explain, what I mean on that chart. There was a move off the lows and the hammer signal actually breached the prior high of that session. You would think that there would be stops at that point which might cause the market to go higher or not as the case may be. But, at the very least you could wait one more candle and see what the reaction would be (in this case a clear rejection of the hammer). It would seem risky to place a sell order too early at new highs without seeing how the traders are handling that new number.
 
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