Trading Hammers (revisited)

[NihabaAshi]

Quote from brownsfan019:

Mark,
So you have found in your trading that you enter a position on the 3 minute chart, first exit is on the 3 min chart and the other exit points are based on the 5 minute chart? If so, I'm curious to know why that is.

Thanks!
Chris

Hi Chris,

My profit target 1 (pt1) is always via the same chart interval as the Pattern Signal chart interval.

There are many variables that would prompt me to increase the chart interval for pt2, pt3 and so on.

* Volatility of the trading instrument
* Seasonal Tendencies
* Key Economic Reports or Events
* Trend Analysis
* Candlestick S/R Zones
* Current Profits for the Trading Day
* Key Sister Markets
* Others

All the above involves having a ton of experience with the trading instrument.

However, as I mentioned before in this thread...when new to profit targets via WRB Analysis...

Best to use the same chart interval for all profit target levels until you earn that experience level and as long as your profit level doesn't decrease.

With that said...in that particular price action chart of CME EuroFX EC the U.S. Dollar Index poor performance since the beginning of the New Year 2006 via the 60min chart interval along with the exhaustion price action since December 2005 via the daily chart interval...

Will keep me trying to ride as long as possible those bullish signals in EuroFX EC because I have a better chance of exploiting EC trend in comparison to short signals.

Simply, the U.S. Dollar Index is a key sister market to monitor (charts and news) while trading CME EuroFX EC or Forex Currency EurUsd.

On my monitors...those charts are side by side.

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

 

[brownsfan019]

Mark,
Just wanted to say thanks for this thread. I decided to start on page 1 and get caught up so I can participate in the thread. I'm on page 50 now, so hopefully will get there soon.
Thanks,
Chris

 

[NihabaAshi]

January 5th Thursday 2006

CME S&P 500 Emini - ES

Bullish White Hammer Pattern
Sub-group: continuation signal
Chart Interval: 15min
PT Levels: All profit targets via the same interval as the pattern signal interval

Key Economic Reports:

The culprits in understanding the price action on a Thursday that had both the 1030am est EIA Petroleum and Natural GAS status reports on the same day got negated in my opinion by the financial networks hyping the Bin Laden audio tape that was released by Al-Jazeera.

Yes...there's other reasons but that was the reason being hyped today in the morning trading session.

I'm going to call this a patriotic price movement upwards.

Further, as you can see in the chart attachment...the actual Bullish White Hammer pattern appeared in the SPX.X index and not in Emini ES.

Yet, as mentioned many times in this thread...it's still a valid trade to take in ES when its index has the pattern signal.

Just the same...same trade could have been taken in the Exchange Traded Fund SPY or the Big Contract SP (I'll post a follow up chart of these two later).

Also, you should notice on the SPX.X chart I annotated that this is the sub-group continuation and not the reversal sub-group.

Here's why...

Take a look at your 120min charts to Daily pattern...its still an uptrend and any Bullish Hammer patterns are continuation signals (trading with the trend) instead of being reversal signals.

This explains a comment I made elsewhere a long time here at EliteTrader.com that just because its a reversal signal (generalization) doesn't imply your counter-trend trading.

Tomorrow will be interesting to see if todays EIA Petroleum and Natural GAS status report have their way between 1015am - 11am est as in producing a good pattern signal with follow-through.

Trend Trading: Normal Position Size

Counter Trend Trading: Profitable traders only but with a reduced position size

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

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=956439</img>

 

[NihabaAshi]

I've attached that other chart I forgot to post last night to show how a pattern signal in one market instrument is a trade signal in all the other similar like market instruments.

More importantly, I want to keep emphasizing that it doesn't matter if your only exclusively trading SPY shares or SP big contract or the Emini ES contract...

You must have all of them on your computer screen at the same time to prevent missing profitable trading opportunities especially if your using a strategy that doesn't produce that many pattern signals in one trading instrument all by itself.

Once again this is the market instruments you should be closely watching for those trading ES or SP or SPY:

* CME S&P 500 Emini ES
* Exchange Traded Fund Amex SPY
* S&P 500 Big Contract SP
* S&P 500 SPX.X Index

Here's that link to the prior chart I posted last night that had the pattern signal in the SPX.X Index

http://www.elitetrader.com/vb/attachment.php?s=&postid=956439

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

 

[jdollarr]

Hi NA please validate the attached 5m Dark Inverted continuation signal and exits for me. There were no econo news pre-market that day as far as I could tell. There was a Mich Prel Sentiment at 950, however.

Question for you on using non time based bars. I have noticed the non time based bars do not generate anywhere near the number of signals compared to time based bars, would you comment on that please.

 

[NihabaAshi]

Quote from jdollarr:

Hi NA please validate the attached 5m Dark Inverted continuation signal and exits for me. There were no econo news pre-market that day as far as I could tell. There was a Mich Prel Sentiment at 950, however.

Question for you on using non time based bars. I have noticed the non time based bars do not generate anywhere near the number of signals compared to time based bars, would you comment on that please.

Hi jdollar,

No...that's not the particular sub-group Bearish Dark Inverted Hammer continuation pattern I'm discussing in this thread because I prefer the High of the Dark Inverted Hammer to be less than the Close of the White WRB to help push the price action of the Dark Inverted Hammer deeper and below the key candlestick s/r zone of that White WRB body.

However, there are a few occassions when the High of the Dark Inverted Hammer being less than the High of the White WRB (instead of the close) is OK but that price action in your chart is not one of those occassions.

Your chart shows the Dark Inverted Hammer smack in the middle of that key candlestick s/r zone of the White WRB body

Another thing about your White WRB...

It's also White Shooting Star or White Inverted Hammer.

Those are very tough to trade.

With that said, although you had a Dark Inverted Hammer Line...

The price action was bearish leading into the Dark Inverted Hammer Line along with that key econ report unable to push prices higher...

Anything up there in that 15min window would have been a good Short Entry and not via any hindsight analysis.

There was an overall chart pattern that got bearish confirmation in the interval prior to the Dark Inverted Hammer and it was independent from any candlestick pattern.

In addition, you may want to print out your chart and keep it for later reference because there is something unique on your chart that involves the White Shooting Star or White Inverted Hammer that's followed by a Dark Inverted Hammer or Dark Shooting Star.

It's a rare candlestick pattern that obviously involves other things but I don't want to discuss such in this thread because it will take the thread into another direction.

As for the non time based bars versus time based bars...

Can you post an example of a non time based bar (chart) because I remember a past discussion at ET where a few traders had different interpretation of what that was.

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

 

[NihabaAshi]

January 31st Tuesday 2006

CME Russell 2000 Emini - ER2

Bullish White Hammer Pattern
Sub-group: continuation signal
Chart Interval: 3min
PT Levels: pt1 via 3min chart and pt2 via the 5min chart

Key Economic Reports:

10am est Consumer Confidence and NAPM-Chicago
1415pm est FOMC Announcement

Via email (most use this method to discuss this thread with me) someone ask me how important are the other Russell Indices (1000 and 3000) to help provide pattern signals like the Russell 2000.

I replied...very important.

The primary key is to use the Index of your trading instrument to provide support in helping you to not miss pattern signals.

Simply, if your going to trade either the Russell 2000 Emini ER2 or the Exchange Traded Fund AMEX IWM...

You need to have Russell 1000, Russell 2000 and Russell 3000 on your monitors because these are indices with similar like price action as either ER2 or IWM.

Simply, if you exclusively trade either ER2 or IWM...

Your at a disadvantage (missed trade opportunities) if you don't have on your monitors those indices and looking for pattern signals in them when you can't find any in your ER2 or IWM.

With that said...you already know that Bullish White Hammer patterns are dynamic in that they behave as reversal and continuation signals.

On this chart it was a continuation signal because of the overall price action of ER2 lately...

Uptrend.

With that said...most traders avoid FOMC announcement days.

However, in my opinion, key market events like this provide more often than not the best trade opportunities and they are often repetitive in their price action...

Market Seasonal Tendencies.

How useful are market season tendencies???

If your into position size management like I am and understand that not every trading day is the same.

Thus, you understand that its counter-productive to be using the same position size every trading day as if every trading day is the same.

Position size management tells me when to make changes in my position size to better control my risk exposure on key trading days.

In this particular chart there's an market tendency about FOMC trading days that's not shown.

First of all, on FOMC trading days, the trade signals that tend to produce to best follow-through to profit targets will appear within the range of the following:

* Within the range of a prior long shadow
* Within the range of the body of a prior WRB
* Within the range of the price action of the most recent key market event

What's not shown on my chart is the price action of the 10am est key economic reports and a prior key WRB as mentioned above.

I will usually mark these key ranges...then wait for the market to do what it normally does on FOMC announcment trading days.

Open up your chart to follow along because as I said already its not shown on my attached chart.

Take a look at your 3min chart at the White Line that open @ 1145am est (731.40) and closed @ 1148am est (732.30).

That's a White WRB and the White Hammer Line closed @ 732.10 within the body range of that prior WRB.

Now...review the price action around the 10am est key market reports.

Highlight the price action of one interval prior to the 10am est reports and one interval after the 10am est reports.

The highs (730.70) and lows (729.30) is the range and the low of long lower shadow on the White Hammer Line was 730.40 thats within the range of the price action of a prior key market event.

My point is not that Hammer patterns only appear within the range of some key prior price action.

If you think that than you misunderstood this message post.

My point is that no matter what your strategy may be...

Don't ignore your trade signals especially if/when they appear within the range of a prior key market event on the day of a key market event...

Unless your too scared to make money.

Last of all, if you've read this thread in its entirety (highly recommended) you should notice the common theme...

Candlestick pattern recognition all by itself will cause problems for most traders (losses).

However, combine them with another trading tool and you increase the odds of finding an edge (consistent profits).

P.S. This is the only message post I will share one of my market tendency info in this thread and will be the only time I will discuss such with specifics.

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

 

[brownsfan019]

Via email (most use this method to discuss this thread with me) someone ask me how important are the other Russell Indices (1000 and 3000) to help provide pattern signals like the Russell 2000.

I replied...very important.

The primary key is to use the Index of your trading instrument to provide support in helping you to not miss pattern signals.

Simply, if your going to trade either the Russell 2000 Emini ER2 or the Exchange Traded Fund AMEX IWM...

You need to have Russell 1000, Russell 2000 and Russell 3000 on your monitors because these are indices with similar like price action as either ER2 or IWM.

Mark - You bring up a great point here to look at the other indices similar to the one you are trading. I went ahead and did this today trying to find the correct ones to look at for the ER2, ES, NQ, and YM.

If you don't mind, could you post what indices I should be looking at in those particular markets?

Thanks!

 

[NihabaAshi]

Quote from brownsfan019:

Mark - You bring up a great point here to look at the other indices similar to the one you are trading. I went ahead and did this today trying to find the correct ones to look at for the ER2, ES, NQ, and YM.

If you don't mind, could you post what indices I should be looking at in those particular markets?

Thanks!

ER2 Emini and IWM traders

* Indices Russell 1000 Index, Russell 2000 Index, Russell 3000 Index

ES Emini, SP big contract and SPY traders

* Indices SPX.X 5000 Index, INX.X 500 Cash Index and OEX.X 100 Index

NQ Emini, ND big contract and QQQQ traders

* Indices NDX.X 100 Index and COMPX Composite Index

YM Emini and DIA traders

* Indices DJIA Index

An example via the above is that regardless if you trade the AMEX-DIA or the mini-sized Dow YM...

You should at least have those three charts (YM, DIA and DJIA Index) on your monitor to prevent missing pattern signals.

I know others using other indices but the above are the main ones I use.

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

 

[NihabaAshi]

February 2nd Thursday 2006

CME S&P 500 Emini - ES

Bullish White Hammer Pattern
Sub-group: reversal signal
Chart Interval: 3min
PT Levels: pt1 and pt2 via 3min chart

Key Economic Reports:

1030am est EIA Natural GAS Status Report

Things got bearish fairly quickly after that report was released and continue so for a good hour until the appearence of the Bullish White Hammer pattern and the market traded sideway for the remaider of the trading day in comparison to that one hour of downtrend.

With that said...if you have access to Eurex DAX futures or Euronext FTSE-100 or CAC-40 futures with European econ info...

You'll see why the U.S. Eminis had a bearish price action before the 0930am est opening bell.

Thus, the price reaction to the 1030am est EIA Natural GAS Status report was the straw that broke the camels back for today's trading session.

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