Trading Hammers (revisited)

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NihabaAshi San,

After reading and reading some more I have made the following observation (coding sorta force me to make the observation as well). You said on 8/19/05 02:17 PM
********************************
Profit targets are WRBs
If Long...profit targets are WRBs that occur at a higher price above the long.
if Short...profit targets are WRBs that occur at a lower price below the Short.
********************************

Here is a more specific revision to them
general rules(if you approve):
----------------------------------------
Profit targets are WRBs
If Long...profit targets are WHITE WRBs that occur at a higher price above the long.
if Short...profit targets are DARK WRBs that occur at a lower price below the Short.
-----------------------------------------

The profit exit exceptions to the above two 'general' rules seems to be:
1. if an opposite signal is produced, the original trade is exited ( I believe I saw a few instances on your charts, even tho not specifically noted).
or
2. if at a profit and the current interval hasn't produced a WRB to exit, and price has reached the zone area of a prior WRB, a trade may be exited. (This is only a guess, since we can't see prior WRB zones on your charts nor have that set of rules been discussed in detail, has it?)
3. if after entry and have some profits, the market becomes very quiet and the bars are trivially short, the WRBs may not be considered, meaning exit WRBs have to have a certain minimum height.

Your comments are appreciated.
 
Here is my first chart post ever on ET.

This serves as a clarification of rule number 5 of the White Bullish Hammer pattern as discussed on this thread:

********************************
If one or more of 3 prior candles is a RED wrb, the the lowershadow, of white hammer must also be longer than the

lowershadows
and
Bodies

of the 3 candles prior to the most recent RED WRB.
********************************

What if one or more of 3 prior candles prior to the white hammer is a WHITE WRB ? (as in #1 on the chart)

purple dots are valid Wh bull hammer patterns. lite blue dots - any WRBs
 

Attachments

Quote from jdollarr:

...The profit exit exceptions to the above two 'general' rules seems to be:
1. if an opposite signal is produced, the original trade is exited ( I believe I saw a few instances on your charts, even tho not specifically noted).
or
2. if at a profit and the current interval hasn't produced a WRB to exit, and price has reached the zone area of a prior WRB, a trade may be exited. (This is only a guess, since we can't see prior WRB zones on your charts nor have that set of rules been discussed in detail, has it?)
3. if after entry and have some profits, the market becomes very quiet and the bars are trivially short, the WRBs may not be considered, meaning exit WRBs have to have a certain minimum height.

Your comments are appreciated.
More...

I don't talk about exit strategy beyond what I've already said about using WRB's as profit targets and the Contingency Plan when things don't go as planned.

Also, I have discussed in this thread and shown several chart examples of a contingency plan strategy concerning the Bullish (dark or white) Hammer just to show how important it is to have one for those occassions when the Bullish (dark or white) Hammer fails or there was a trade error (misinterpretation) upon entry into what was thought to be a Bullish (dark or white) Hammer pattern.

sunnyskies posted a chart of his particular contingency plan...

http://charts.dacharts.com/2005-08-27/0826-SAR.png

Here's a chart example of my own contingency plan (a little different than sunnyskies)...

http://www.elitetrader.com/vb/attachment.php?s=&postid=828434

Yet, this contingency plan pattern doesn't get activated every time a Bullish (dark or white) Hammer fails...it shows up sometimes.

With that said...I can now answer your questions.

Answer #1:

I'm not sure what you mean by the opposite signal.

However, if your suggesting if a mirror image (short signal) appears after you go Long as in an example of a Bullish Hammer...

I don't trade that way via using mirror image patterns as exit signals.

Yet, if I get a strong short signal regardless if it's via a candlestick pattern, key market event price reaction or some other price action only pattern (non-candlestick)...

I'll either reverse my position or exit all my contracts to lock in my profits without opening a new position.

However, if its a weak short signal...I won't exit my Long position.

Answer #2:

As I mentioned before...I don't discussed any advanced exit strategy techniques in this thread beyond what I've already have because it in itself will take away from the discussion of Hammer patterns and is more involved than writing about my experiences with Hammer patterns.

The two I have already discussed are WRB's as exit signals and the one particular Contingency Plan.

Always have a plan B when plan A doesn't work

Answer #3:

In the beginning of learning and applying WRB's as profit targets...

It's critical to exit the WRB profit target as soon as it becomes a WRB.

However, after many many months or a few years of using them...you'll be more in tuned with the price action of the particular trading instrument your trading and will know when to stay in the trade a little longer (intuition) to capture more of the WRB as a profit.

Also, I don't know what you mean by bars are trivially short.

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

Here is my first chart post ever on ET.

This serves as a clarification of rule number 5 of the White Bullish Hammer pattern as discussed on this thread:

********************************
If one or more of 3 prior candles is a RED wrb, the the lowershadow, of white hammer must also be longer than the

lowershadows
and
Bodies

of the 3 candles prior to the most recent RED WRB.
********************************

What if one or more of 3 prior candles prior to the white hammer is a WHITE WRB ? (as in #1 on the chart)

purple dots are valid Wh bull hammer patterns. lite blue dots - any WRBs
More...

The rule you wrote is a little incorrect.

It should state the following via using your words (rearranging a little)...

If one of the 3 prior candles is a RED wrb, the the lowershadow, of white hammer must also be longer than the lowershadows and Bodies of the 3 candles prior to that most recent RED WRB.

Also, it doesn't matter how many WRB's may be among those prior three intervals before the White Hammer because the most recent WRB to the White Hammer is the key WRB while the lower shadows and bodies of any other WRB's must be smaller than the length of the lower shadow on the White Hammer pattern.

Also, in your chart what you have annotated as #1 is not a White Hammer pattern I'm discussing in this thread that I trade.

It's a White Hangman (hanging man) pattern...a continuation pattern.
__________________

Here are two rules to help prevent getting White Hangman patterns mixed in with White Hammer patterns...

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

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

* Close of White Hammer Line < or = Highest High among the prior two candlestick lines.
__________________

I know a few traders that uses their own variation of the above but the above works well for me and my trade management style.

The other White Hammer pattern that's annotated as #2 in your chart is a good pattern and the first interval after that White Hammer did produce a WRB pt1 level (exit signal).

Now...here's a little info about the prior price action that was key to that particular #2 White Hammer on your chart although not a rule itself.

This is another example of what I mean by understanding the price action prior to any pattern signals.

Take a look at the White WRB that's the interval before what you thought was a #1 White Hammer pattern.

The body range of that White WRB is a key candlestick s/r level.

Your #2 White Hammer had its low test the s/r level zone of that White WRB to help give that #2 White Hammer some additional support.

I also noticed on you chart the dat of 11/30.

Just prior to the price rises there was a Dark WRB before 11/30...a big Dark WRB.

That tells me in hindsight there was a key market event or new related event that sent prices higher after that Dark WRB....an event that occurred near the time of that Dark WRB.

That's something only you can answer and whatever your answer is...don't forget it because its another part of understanding the price action that leads into Hammer patterns.

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

here are my trades from yesterday and today:

3.1.2006
QM
Bearish DHL
16:35 Sell 62.375(3)
16:46 Stopped Out 62.650(3)
 
Quote from hopy:

Hello,

here are my trades from yesterday and today:

3.1.2006
QM
Bearish DHL
16:35 Sell 62.375(3)
16:46 Stopped Out 62.650(3)

http://www.elitetrader.com/vb/attachment.php?s=&postid=943158
More...

Hi Hopy,

That's a tough trade you took in QM e-miNY Crude Oil.

What's your trend analysis of QM or CL Light Crude Oil prior to that Short position?

However, as I mentioned many times in other threads about Japanese Candlesticks is not suitable for counter-trend trading unless your a very experience candlestick pattern trader that's also a profitable trader.

What I'm saying is that experience candlestick pattern traders will on occasion do counter-trend trades.

Yet, when they do...they reduce their risk exposure in those counter-trend trades.

For example...lets pretend you normally trade 3 QM contracts and your a experience candlestick pattern trader (profitable).

If for some reason you decide to do a counter-trend trade...you would reduce your position size dramatically.

In this pretend situation...one contract is a good risk control in comparison to trading your normal 3 contracts.

There are some I know that control their risk exposure via doing things like tightening their stops et cetera.

However, I'm a big fan of reducing the position size (position size managment) to control my risk exposure whenever I get a wild bug and decide to counter-trend trade instead of changing the mechanism of the trade via tightening stops.

The NYMEX Light Crude Oil CL chart attachment shows CL is in an uptrend and take a closer look at Jan 3rd the day you took your Short position.

Summary:

* Traders new to Hammer pattern trading should not counter-trend trade.

Thus, Bearish Dark Inverted Hammer pattern trades should only be taken when its a downtrend (you'll be looking for failed counter-thrusts or whatever you use to define a down trend).

Bullish Dark or White Hammer pattern trades should only be taken when its an uptrend (you'll be looking for pullbacks or whatever you use to define an up trend).

* Experience (profitable) Hammer pattern traders if counter-trend trading should reduce their risk exposure via reducing dramatically their position size.

I myself will reduce my position size by more than 50% when counter-trend trading.

* Regardless to your level of experience with Hammer pattern trading...all should have a contingency plan (plan B) pattern to tell them its time to either exit or reverse the position before the initial stop/loss protection is hit.

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

Attachments

Quote from hopy:

Bullish WHL
EUR
17:30 Buy 1.2126(3)
Sell 1.2138(1)
Sell 1.2152(1)
19:01 Sell 1.2183(1)

http://www.elitetrader.com/vb/attachment.php?s=&postid=943163
More...

Hi Hopy,

I like this trade you took.

It was in the same direction as the uptrend (I took a peek at my 60min chart).

I also liked the fact that you increased the range of your WRB pt2 and pt3 levels via increasing the chart interval from 5min to 10min for those particular exits.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
 
Hello Niha,

thanks for your comments about my trades.
The first trade (QM) was simply thoughtless. I was coming home from work and entered this trade a few seconds after I had started my chartprogram because the chart looked so good. After a few minutes I noticed how wrong I was and left this trade.

The EUR-trade was better but I never expected this result
:)

I will try to spend more attention to the trend in the higher timeframes.

Good trades to all
Hopy
 
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