Trading Hammers (revisited)

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Quote from LondonUSTrader:

Hi NH,

A while ago you briefly touched on sister trading instruments.

I was wondering how that works in the placement of stops.

Say you get a signal to enter in the ES, but trade the YM instead - its sister trading instrument.

Do you then base the stop based on the price of the pattern in the ES and just execute it market in the YM when that price is hit in the ES or is your stop level based on the price action for the YM even though your entry signal was in the ES.

Thanks.
More...

In sister trades...

Trade management after entry is via YM in your example eventhough the Pattern signal occurred in ES.

However, had the Pattern Signal occurred in the Dow Jones Industrial Average Index (DJIA)...

You can base your trade management for YM via DJIA or YM itself.

Same with ES...

Lets say your Pattern Signal occurred in NQ and your take the trade in ES instead.

Trade management after entry is exclusively via ES.

However, had the Pattern Signal occurred in SPX.X

You now have the option of using the price action in either ES or SPX.X to manage your trade in ES.

The above sounds simple but is not recommended for new traders to candlestick analysis because its an advance trade management technique.

Further, valid hammer patterns are occurring almost every trading day.

Anyone that tells me they haven't seen any hammer patterns recently is someone that doesn't have their charting program setup properly to look for valid hammer patterns.

For example...lets pretend I only trade NQ and nothing else.

I should have charts side by side with NQ of the following:

* NDX.X
* Nasdaq Composite Index
* ND big future contract
* QQQQ

Therefore, there may be a hammer pattern in those other market instruments to merit a trade in NQ eventhough NQ itself doesn't have a valid hammer pattern.

Sister Trading is an advance trading technique and only recommend for experience traders.

NihabaAshi
 
I was thinking about why a signal should only be used if there is a white hammer line AND the long lower shadow of the white hammer line is LONGER than the lower shadows of the previous 3 shadows.

Maybe here is the psychology of this described price action:
The longer the lower shadow the stronger the buyers (demand).
So what we want is a white hammer with a price action before that shows that buyers are returning and are already taking over (White instead of dark hammer).

GM
 
Quote from GoodMood:

I was thinking about why a signal should only be used if there is a white hammer line AND the long lower shadow of the white hammer line is LONGER than the lower shadows of the previous 3 shadows...
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Hi GoodMood,

When I first started using Japanese Candlesticks...

I tested and traded White Hammer Lines based solely on the rule you described above (there were no other criteria).

It's not very reliable (losses).

I later discover that the key to those prior intervals wasn't just the length of their lower shadows...

It was the position of the bodies in relationship to the body of the White Hammer and the position of the lower shadows in relationship to the body and long lower shadow of the White Hammer.

That's when I went from losses to profits in trading White Hammer patterns.

Therefore, I discover sometimes trying to keep it simple (just 1-2 rules) in trading candlesticks was the reason why such produced losses or had testing results that showed them as unreliable.

...Maybe here is the psychology of this described price action:
The longer the lower shadow the stronger the buyers (demand).
So what we want is a white hammer with a price action before that shows that buyers are returning and are already taking over (White instead of dark hammer).

GM
More...

Yes...your analysis is correct.

However, you can also measure the psychology of buyers by how dark lines and white lines interact, WRBs and length of shadows.

NihabaAshi
 
Hi NihabaAshi,

so let's assume we are looking for an oversold market in order to got long.

What we want is a kind of sell-off, meaning that supply is (much) bigger than support.

I so far only understand the psychology of the pattern I've described in my earlier post.

Given that you started with the same idea some years ago, how did you proceed ?

One method would be to print out all charts that have a >pattern< like that and compare them and find commonalities between winners and loosers when looking at the prior intervals.

An other (more sophisticated) method would be to image what a typical participant of the market would feel / think if the price got here or there and finally produces a hammer.

How should I proceed ?

GM

P.S.: Even after thinking very hard about it I can't get an idea about how white and dark candles should interact in the intervals before the hammer in order to justify the build up of a valid pattern.
 
Quote from GoodMood:

Hi NihabaAshi,

so let's assume we are looking for an oversold market in order to got long.

What we want is a kind of sell-off, meaning that supply is (much) bigger than support.

I so far only understand the psychology of the pattern I've described in my earlier post.

Given that you started with the same idea some years ago, how did you proceed ?...
More...

I was already doing what I call WRB (wide range body) Analysis prior to when the candlestick guys came out with their books on candlesticks.

WRB Analysis contains a wealth of information about changes or shifts in supply/demand...

More than just volume and price alone.

I simply merged WRB Analysis with Japanese Candlesticks after I saw just about every chart in those candlesticks being involved in the price action just prior or soon after a candlestick pattern.

Only then did my understanding and trading of Japanese Candlesticks improve dramatically.

Later with the help of learning about long shadows from candlesticks...things got even better.

...One method would be to print out all charts that have a >pattern< like that and compare them and find commonalities between winners and loosers when looking at the prior intervals.

An other (more sophisticated) method would be to image what a typical participant of the market would feel / think if the price got here or there and finally produces a hammer.

How should I proceed ?

GM


P.S.: Even after thinking very hard about it I can't get an idea about how white and dark candles should interact in the intervals before the hammer in order to justify the build up of a valid pattern.
More...

Review what I said in this thread about the flaws of using Hindsight Charts as a learning tool because they cause what I call Reaction Lag.

I also give a solution on how to overcome that Reaction Lag.

You can use ET search menu to find my past discussions on the topic via typing the words NihabaAshi Hindsight Charts or NihabaAshi Reaction Lag because I include my name at the bottom of all my posts to make it very easy to quickly research past topics I've discussed.

http://www.elitetrader.com/vb/search.php?s=

NihabaAshi
 
NihabaAshi,

On the 10th August you posted a graph of the CME Emini ES with a dark inv. hamm. line.

Based upon my, no doubt imperfect, understanding of the rules for the bull. whi. hamm. does the candlestick @ 15.30 on that graph a qualify?

{ B W. Hamm. - LS>BODY>US, LS>PRIOR 3 LSs, L<PRIOR 3 Ls, LS>3 PRIOR BODIES, DARK LINE WITHIN 3 PRIOR LINES WITH L>OPEN OF HAMMER.}

Preparing to duck,

John G
 
Quote from jeg:

NihabaAshi,

On the 10th August you posted a graph of the CME Emini ES with a dark inv. hamm. line.

Based upon my, no doubt imperfect, understanding of the rules for the bull. whi. hamm. does the candlestick @ 15.30 on that graph a qualify?

{ B W. Hamm. - LS>BODY>US, LS>PRIOR 3 LSs, L<PRIOR 3 Ls, LS>3 PRIOR BODIES, DARK LINE WITHIN 3 PRIOR LINES WITH L>OPEN OF HAMMER.}

Preparing to duck,

John G
More...

Hi John,

I think your talking about this chart...

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

Yes...that's a valid Bullish White Hammer pattern that appeared around 1530pm est.

However, based upon candlestick analysis by itself of that particular ES chart all by itself (tunnel vision)...

I would not have taken that trade based upon the fact there was not a valid Entry Signal.

(review the difference between Pattern Signal and Entry Signal).

However, I do remember a few guys taking that trade in ES based upon other price action only methods and these guys don't use an Entry Signal method like I do.

Best Regards,
Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Quote from Babak:

Mark, this may be a dumb Q but what is the difference between an inverted hammer and a shooting star? TIA
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i think inverted is a bottom to move up and shooting star is a top to move down.
 
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