Trading Hammers (revisited)

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January 5th Thursday 2006

CME S&P 500 Emini - ES

Bearish Dark Inverted Hammer Pattern
Sub-group: continuation signal
Chart Interval: 2min
PT Levels: pt2 via the 3min chart

Key Economic Reports:

The culprits in understanding the price action was the following:

* 1030am est EIA Petroleum Status Report

The volatility in the Eminis increased during the price action of the EIA report for about 15mins which was long enough for a pt2 level to be reached.

* 10am est ISM Non-Mfg Survey Report and Pending Home Sales Index

These two key economic reports helped produced the key White WRB that is shown in the chart.

ES price action then went sideways until it broke below the support level of the White WRB via the price action of a Dark WRB.

Weak buyers then showed up to be easily shaken out which was confirmed via the long upper shadow of the Bearish Dark Inverted Hammer pattern.

(later in the trading day the above mentioned long upper shadow and WRB's becomes key candlestick s/r zones)

The above is to explain how important it is to understand the price action prior to any Hammer pattern signal.

If you don't understand that price action then ignore any candlestick pattern.

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

Attachments

YM 3-min-Chart
20:48 Bullish WHL

Buy 10892(3)
Sell 10898(1)
Sell 10915(1)
Sell 10917(1)

Hello Niha,

at 20:48 when I started this trade I didn't saw a downtrend at the 60-min-chart. The trend of the day was down so I didn't expect too much.

Hopy
 

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hey guys my ES 3min chart is very different than yours, are CME data vs. Globex data that much different? Compare this one to the one Hopy posted please. Tell me I am not going crazy.....

I am using tradestation.

Similar differences are being seen on nq and ER2 btw.
 

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Quote from jdollarr:

hey guys my ES 3min chart is very different than yours, are CME data vs. Globex data that much different? Compare this one to the one Hopy posted please. Tell me I am not going crazy.....

I am using tradestation.

Similar differences are being seen on nq and ER2 btw.
More...

Hi jdollar,

Both my data vendors are slightly different than Hopy chart in the price action before the White Hammer and both my data vendors are slighty different than your chart in that I have a White Hammer and you don't.

This is one of the nuances (not a big one) that candlestick patterns can be different from one trader to the next due to differences in data providers.

Such is not a problem for experience candlestick pattern traders and here's why:

* Understand the price action prior to the Pattern signal and you will easily compensate for data vendor or charting program discrepencies in Hammer Lines.

* Hammer Lines are from the Long Shadow Family and all in that family have similar like price action in the Long Shadow although different reliabilities due to the price action that occurs prior to the Long Shadow.

Thus, you may have a Long Legged Doji and I may have a White Hammer while someone else may have a Dark Hammer and if all three traders understand the price action...

The trade signal is essentially the same eventhough will have different Pattern signal rules.

I mentioned this before in general terms that everything was different but didn't go into details about where exactly it is different nor did I mentioned where it is similar like as I do in this message.

However, if neither traders understand the price action before any Long Shadow Pattern signal...

The price action will essentially seem different.

(Basically I'm talking about the price action before the Hammer Line versus the price action within the Long Shadow.)

This is one of the reasons why I selected Hammers to discuss at EliteTrader.com in comparison to any other candlestick pattern.

It's easier to learn, easier to apply because there's a lot of information in those Long Shadow Lines that are similar regardless if its a Long Legged Doji, White Hammer, Dark Hammer et cetera.

Also, when your following other similar like price action...it can prevent missed trade opportunities.

For example, Hopy chart shows a White Hammer Line for ES while your chart shows a Long Legged Doji Line for ES.

I folllow the SPX.X (CBOT), INX (CME), SP (big contract) and SPY when trading ES on some trading days.

If I had a Long Legged Doji Line or a Dark Hammer Line in ES while either SPX.X or SP or SPY had a valid White Hammer Pattern...

I will take the trade in ES as if it also had a valid White Hammer Pattern.

I use the above when I decide on particular trading days to only trade the ES.

Further, I'm also saying if you exclusively trade SPY then you should be following the other charts that I mentioned.

If your exclusively trading the SP big contract then you should also be following the other charts that I mentioned.

Long Shadow Family:

* White Hammers
* Dark Hammers
* Long Legged Dojis
* White Shooting Stars
* Dark Shooting Stars
* Dark Inverted Hammers
* White Inverted Hammers
* Small Real Bodies (dark or white) with Long Shadows
* White Hanging Man
* Dark Hanging Man

Each of the above have their own sub-group of patterns that are unreliable and reliable.

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

my chartprogramm is sierrachart and sierrachart uses the pc-clock to start and end the candles. This is the reason why your chart looks different to mine.

greetings
Hopy
 
Quote from hopy:

QM
Bullish WHL
17:24 Buy 63.675(3)
17:36 Sell 63.525(3)

http://www.elitetrader.com/vb/attachment.php?s=&postid=948149
More...

Hi Hopy,

That was a good looking Bullish White Hammer pattern.

Do you see the Dark WRB that's two intervals before the White Hammer Line ?

The three white lines with higher closes that got hit with the Dark WRB helped setup the Bullish White Hammer pattern on your chart.

Unfortunately the pattern signal failed.

Now...here's the remainder of the story.

Remember how I discussed that its important to have a plan B (contingency plan)...

Well...the contingency plan pattern showed up in the Dark WRB that's annotated on your chart as S.

That would have been my signal to reverse the Long position into a Short position (see chart attachment below).

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

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=948234</img>
 

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