Trading Hammers (revisited)

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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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Hi Babak,

Actually that's not a dumb question because almost all the candlestick books or online resources really don't go in-depth into the differences.

They keep it simple like saying Shooting Star Lines occurs at the top of an up move and Inverted Hammers Lines occurs at the bottom of a down price move with both as low probability (not reliable) reversal signals.

Stuff I'm discussing in this thread is a lot more advance and not found in any books...

Just hard work and many many many years of experience in trading this stuff.

Shooting Stars (dark or white) are very dependent upon the price action after the Shooting Star to give a trade signal when combined with the Shooting Star.

The body of Shooting Stars (dark or white) are more often than not above the bodies of the prior price action...

Whereas the body of Dark Inverted Hammers tend to be within range (among and/or below) the bodies of the prior price action.

Shooting Stars are not trade signals all by themselves (not reliable) although many will test and trade them as such.

Whereas the Inverted Hammer (dark) is dependent upon the price action before the Dark Inverted Hammer to give a trade signal when combined with the Inverted Hammer.

White Inverted Hammer are a little different. They behave very similar to Shooting Stars...

Depedent upon the price action that occurs after to give it trade signals.

Shooting Stars are bearish reversal signals.

Inverted Hammers are bearish continuation and bearish reversal signals...the reliable ones.

Inverted Hammers as bullish reversal signals (books, online resources and computer software codes)...

Unreliable ones (low probability) trade signals.

Inverted Hammers are not trade signals all by themselves (not reliable) although many will test and trade them as such.

You should notice the key words above is the price action that occurs either before or after.

That's what this thread is all about and I'm only discussing a few reliable patterns...

Avoiding the common unreliable stuff which in turns keeps away most that don't believe candlesticks are reliable because I know what they have tested and traded.

By the way...I'm not discussing any in-depth details about White Inverted Hammers nor Shooting Stars (dark or white) in this thread.

However, I encourage anyone else to discuss them along with providing chart examples of what they are talking about along with some rules or whatever tells them its a trade in comparison to another White Inverted Hammer or Shooting Star they may ignore.

I do discuss White Inverted Hammers and Shooting Stars via pm or email

I just wanted to get away from the typical book stuff, online stuff and computer software codes which in my opinion are lacking.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Quote from brokerboy:

would you call this an inverted hammer candle? when would you be in it?

if this does not work its a daily chart of ths
http://bigcharts.marketwatch.com/intchart/frames/frames.asp?symb=ths&time=&freq=
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Hi brokerboy,

Your THS had a Dark Inverted Hammer but not anything worth doing any analysis on because of what I'm going to say below.

In this thread...I'm only discussing the application of Hammer patterns for trading in the Futures markets.

If others discuss in this thread something different...something I'm unfamiliar with...

Hopefully someone else can provide Hammer Pattern Analysis.

Further, the charts I've posted in this thread are of trading instruments I trade and have a close network of professional and retail traders that trades the same trading instruments.

For example...someone in this thread posted a chart of the Hang Seng Futures.

It's something I know very little about and was hoping he would continue contributing to this thread about Hammer Pattern Analysis or trading the Hang Seng.

Unfortunately he hasn't contributed any further and I've been learning the Hang Seng on my own.

What I'm saying is that I don't apply Japanese Candlesticks to stocks nor do I know anything about its reliability when applied to THS.

I'm not saying I never traded stocks in the past and I do own long term stock investments not managed by me.

Now that you have a little more info about my experience with candlestick analysis and stocks (not reliable experience)...

I mentioned througout this thread its key to understanding the price action prior or after (depending upon the pattern) and doing live-recordings to get a good understanding of Hammer Pattern Analysis.

Without it...is just a waste of time and energy.

Further, its key to learn what causes that price action and since fundamental and news is key for stocks...

Stuff I don't follow nor do I have the time to follow...

I'll be walking a blind path in trading stocks strictly by Japanese Candlesticks without understanding the reasons behind its price action...

Tunnel Vision in a bad way.

Simply, if you think you know prices are going to go down for whatever reasons...

Candlesticks can be used as an entry signal into what you already know.

Just the same...if you think you know prices are going to go up for whatever reasons...

Candlesticks can be used as an entry signal into what you already know.

It's not the other way around...don't use candlesticks to tell you what the price action will do.

Example of above about knowing the price action is the link below to a prior thread I was involved in...

http://www.elitetrader.com/vb/showthread.php?s=&threadid=57633

Now that I know what particular futures will be doing between October 28th and November 14th...

Whenever I get day trade Long signals...

I'm normal to large on the contracts.

Whenever I get day trade Short signals...

I'm small size only in comparison to my Long positions.

Understanding the price action prior to any Hammer Pattern Signal.

As for swing trades...I've been missing the train on that although many I know have not. :mad:

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
November 7th Monday

CME EuroFX - EC

Bullish White Hammer Pattern
Sub-group: reversal signal
Chart Interval: 5min
PT Level Reached: pt3

I haven't posted a chart in awhile and thought this one was very interesting considering it almost had a contingency plan trade activated after the Hammer pattern.

I've already discussed some details about this particular contingency plan trade in this thread.

However, I want to make another comment about it that prevents me from reversing a Bullish Hammer Long position into a Short position.

In the attached chart below you should be able to see a Dark WRB (labeled as B) that occurred three intervals after the White Hammer Line.

Now...look at the Dark WRB (labeled as A) that occurred two intervals before the White Hammer Line.

Comparing the two Dark WRBs...you can see that the close of Dark WRB (A) did not close below the clos of Dark WRB (B).

That's a critical distiction and for a valid contingency plan (meriting reversing from the Long position into a Short position) via discussion of the Bullish White Hammer pattern...

* Close of Dark WRB (B) < Close of Dark WRB (A)

(note: There are other rules but this one is one of the most important rules)

Anyways...contingency plan didn't get activated so that Long position still has a reliable opportunity to be profitable and it did by reaching a pt1 then a pt2 and finally a pt3 profit target price area.

With that said...what was the reason behind the price action ???

Well...a lot of things and I don't have time to go into any details but anybody paying attention to the financial and world news will know:

* U.S. Dollar performance
* Rioting in France
* De-stability rumor about Euro

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=892519>
 

Attachments

Forex GBPUSD, 1h

Bullish Dark Hammer,
continuation signal

Looking for a reversal after the strong losses.

Any comments ?
I think the doji supports the reversal.

GM
 

Attachments

Quote from GoodMood:

Forex GBPUSD, 1h

Bullish Dark Hammer,
continuation signal

Looking for a reversal after the strong losses.

Any comments ?
I think the doji supports the reversal.

GM
More...

I like what your looking at.

Yet, its a reversal signal and not a continuation signal.

Also, looks like there was a pt3 around 2300hrs.

Thanks for showing the chart.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=893665>
 
Marc,

I'm a bit confused about the evaluation of profit targets.

Because of what I've read so far I would exit (e.g. long position) as soon as a candle becomes a white WRB. This is meant to be an intra-candle action instead of waiting until the candle is complete.
And profit target selection is the same for all signal familys.

I've dug out the attached chart from Dec 2004 where pt1 seems to be one candle to late (hindsight of course).

GM
 

Attachments

Quote from GoodMood:

Forex - EUR/USD 1h

White Bullish Hammer
FAILED - Position reversal

http://www.elitetrader.com/vb/attachment.php?s=&postid=894977

GM
More...

Hi GoodMood,

Nice position reversal from the losing Bullish White Hammer (Long position) into a winning Contingency Plan (Short position).

I'll explain later this weekend why that Bullish White Hammer pattern is not something I trade.

It has to do with how the White Hammer Line interacted with the prior 3 consecutive down intervals and the true strength of the White Hammer Line was weak based on how the body of the White Hammer Line interacted with the lower shadows of those prior 3 intervals.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Quote from GoodMood:

Marc,

I'm a bit confused about the evaluation of profit targets.

Because of what I've read so far I would exit (e.g. long position) as soon as a candle becomes a white WRB. This is meant to be an intra-candle action instead of waiting until the candle is complete.
And profit target selection is the same for all signal familys.

I've dug out the attached chart from Dec 2004 where pt1 seems to be one candle to late (hindsight of course).

GM
More...

Hi GoodMood,

Your interpretation of profit targets (exit strategy) via WRB Analysis is correct.

In that chart...

http://www.elitetrader.com/vb/attachment.php?s=&postid=894966

Yet, in that particular chart...Profit target 1 (pt1) was via a higher chart interval and not via the pattern signal interval...reason why you were confused by the location of pt1.

Whereas, under most trading conditions...pt1 is via the same interval as the pattern signal and such is not the case in that chart.

Further, until you gain enough experience with WRB Analysis...

I strongly recommended that your profit target 1 (pt1) via WRB Analysis as an exit strategy to keep that pt1 as the same interval as the pattern signal interval.

In addition, that chart you reference is via the prior Tradin' Hammers thread and in that thread I was discussing a different type of Bullish White Hammer pattern sub-group (I've documented many but have only shared a few at ET).

http://www.elitetrader.com/vb/showthread.php?s=&threadid=18381&perpage=5&pagenumber=69

It's a chart based upon Candlesticks with Volume Divergence involving WRB Analysis as a filter...

Something I won't discuss in this thread because its a completely different Bullish White Hammer pattern sub-group.

If you want to discuss Volume Divergence via WRB Analysis...

Send me a pm or email.

P.S. Volume Divergence is not applicable to Forex except for EurUsd via analyzing EuroFX.

However, once you begin to learn more about WRB Analysis...it represents volume and provides the same info as volume.

Such is very useful in Forex trading.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
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