Trading Hammers (revisited)

[NihabaAshi]

February 15th Wednesday 2006

CME Nasdaq 100 Emini Futures - NQ

Bullish White Hammer Pattern
Sub-group: reversal signal
Chart Interval: 2min
PT Levels: pt1 via 2min chart and pt2 - p4 via 5min chart

Will not bother to mention the usual market events as the culprits behind this pattern formation.

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

 

[NihabaAshi]

February 23rd Thursday 2006

Eurex Index Derivatives - DAX

Bullish White Hammer Pattern
Sub-group: continuation signal
Chart Interval: 10min
PT Levels: pt1 via 10min chart and pt2 - p3 via 15min chart

Eurex derivatives (DAX, DJ EuroStoxx50) and the Euronext Futures (FTSE-100, CAC-40) all made their move about the same time although all weren't in a valid hammer pattern via the discussion in this thread...

However, all had long lower shadows and hammer patterns are a member of the Long Shadow Family.

Yet, FTSE-100 only reached a pt1 level while CAC-40 reached a pt4 level.

Just as important, take a look at the U.S. Eminis chart and the highly anticipated 1030am est EIA Petroleum and Natural Gas Reports that were scheduled on the same day (Thursday) due to the Monday holiday.

Yet, yesterday the price action to the pending 1030am est reports beginned unusually early around 10am est and on declining volatility (deceptive) until around 1030am est.

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

 

[NihabaAshi]

March 1st Wednesday 2006

Eurex Index Derivatives - DAX

Bullish White Hammer Pattern
Sub-group: continuation signal
Chart Interval: 5min
PT Levels: pt1 via 5min chart, pt2 - p3 via 15min chart and pt4 at the close

Eurex derivatives (DAX, DJ EuroStoxx50) and the Euronext Futures (FTSE-100, CAC-40) all made their move about the same time although all weren't in a valid hammer pattern via the discussion in this thread.

However, all had long lower shadows to give support to the DAX bullish white hammer pattern...

A hammer pattern thats a member of the Long Shadow Family.

Key Economic Reports: 10am and 1030am est

Eurex, Eminis and EuroFX usually picks up its volatility level between 1015am - 1045am est in reaction to Wednesday's EIA Petroleum Status Reports...

Changes in volatility will produce changes in supply/demand...

Resulting in trends.

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

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=997057</img>

 

[cashmoney69]

Hey NihabaAshi

its me, I told you I'd post intel, so here it is for Feb 24/06 intraday. In case, it does not list the colors on your screen (for some odd reason), those are 50/200 ma's. Whats interesting is that there seems to be a hanging man and hammer right next to eachother... my problem is that hammers and hanging man candles can be any color.

I do know that hammers are a BOTTOM reversal signal and hanging man candles, opposite, but these candles are right next to eachother.. Its interesting to say the least.

- nathan

 

[cnms2]

If I may: this is just a meaningless spike, but a good way to clean up a signal is to combine 2-3 adjacent candles in one: in this case a hammer.

For an example see http://www.elitetrader.com/vb/attachment.php?s=&postid=444712

Quote from cashmoney69:

Hey NihabaAshi

its me, I told you I'd post intel, so here it is for Feb 24/06 intraday. In case, it does not list the colors on your screen (for some odd reason), those are 50/200 ma's. Whats interesting is that there seems to be a hanging man and hammer right next to eachother... my problem is that hammers and hanging man candles can be any color.

I do know that hammers are a BOTTOM reversal signal and hanging man candles, opposite, but these candles are right next to eachother.. Its interesting to say the least.

- nathan

 

[NihabaAshi]

Quote from cashmoney69:

Hey NihabaAshi

its me, I told you I'd post intel, so here it is for Feb 24/06 intraday. In case, it does not list the colors on your screen (for some odd reason), those are 50/200 ma's. Whats interesting is that there seems to be a hanging man and hammer right next to eachother... my problem is that hammers and hanging man candles can be any color.

I do know that hammers are a BOTTOM reversal signal and hanging man candles, opposite, but these candles are right next to eachother.. Its interesting to say the least.

- nathan

Hi Nathan,

On your chart that's not annotated about what your discussing...

I don't see any hanging man line right next to a hammer line if you literally meant right next to each other.

Can you be specific about the times on your chart when such occurred ???

Yet, if your talking about the candlestick lines that occurred at 1215pm and 1220pm est...

I think those long lower shadows are data vendor errors because my three different sources of data doesn't have those long lower shadow spikes.

However, one of my data vendors does show a "white out" as if there was a spike and it was corrected (removed).

Also, Bullish Hammer patterns are either of the following depending upon the type of price action it is forming among:

* Trend Reversal Patterns
* Trend Continuation Patterns

Regardless if its a reversal or continuation...

They don't always occur at some bottom although most text books will say in error that they are hammering out a bottom.

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

 

[cashmoney69]

"They don't always occur at some bottom although most text books will say in error that they are hammering out a bottom. "

I think thats what it says in Nison's book, because that sounds familiar.

The chart was taken off yahoo, so as far as quality is concerned...maybe its not as good as the charts you would get off your broker..i'd put up charts from my broker, but i don't know how to copy and paste the charts to my desktop

if anyone knows..pm me.

- nate

 

[BertH]

Mark,

I have only gotten to August 25 on this fantastic thread, but I'd like to confirm that you'd follow a particular strategy below;
I trade stocks and not futures, but think these following options would apply for both:

One could set up some kind of screener system to produce a list of stocks that have created the kind of criteria you're looking for (a specific hammer pattern, for instance). The upside is the screen could almost always provide a trader with at least one (likely more) vehicle to trade at many points during the day. Downside would seem to be that each trading vehicle (individual stock or commodity, for instance) has its own unique characteristics. There would be no way in realtime to have any comfort that what you're considering trading will behave in similar fashion to that observed in other vehicles when a pre-sought candle pattern emerges.

Or, one could follow a finite group of stocks and get to know their tendencies really well and then observe their intraday action, waiting for trade setups to develop. Upside is you know the stock/vehicle well, are comfortable with what you'd at least expect to happen when certain setups come. The downside is that very few trades would appear for those who are trying to master their first candle patterns. [I recall your emphasizing learning a very few of these before trying to trade with more]

My estimation from what I've read is you'd take the latter approach, but I would like to hear for sure and ask if you have any further recommendations on how to handle that scenario.

Thanks a lot

 

[NihabaAshi]

Quote from BertH:

Mark,

I have only gotten to August 25 on this fantastic thread, but I'd like to confirm that you'd follow a particular strategy below;
I trade stocks and not futures, but think these following options would apply for both:

One could set up some kind of screener system to produce a list of stocks that have created the kind of criteria you're looking for (a specific hammer pattern, for instance). The upside is the screen could almost always provide a trader with at least one (likely more) vehicle to trade at many points during the day. Downside would seem to be that each trading vehicle (individual stock or commodity, for instance) has its own unique characteristics. There would be no way in realtime to have any comfort that what you're considering trading will behave in similar fashion to that observed in other vehicles when a pre-sought candle pattern emerges.

Or, one could follow a finite group of stocks and get to know their tendencies really well and then observe their intraday action, waiting for trade setups to develop. Upside is you know the stock/vehicle well, are comfortable with what you'd at least expect to happen when certain setups come. The downside is that very few trades would appear for those who are trying to master their first candle patterns. [I recall your emphasizing learning a very few of these before trying to trade with more]

My estimation from what I've read is you'd take the latter approach, but I would like to hear for sure and ask if you have any further recommendations on how to handle that scenario.

Thanks a lot

Hi BertH,

Yes, your absolutely correct.

The latter approach is what I highly recommend to any trader regardless to their level of experience.

The main problem with the other approach is that it fools most traders to become dependent upon the screener (computer codes) and the trader never learns to understand the price action.

That lack of understanding will produce drawdown periods to deep for one pockets along with not allowing you to learn how to adapt your approach to the markets, your approach to Hammer patterns until its too late.

You will also notice something else as you continue reading through this thread is that I post often about key economic reports info, price action of other trading instruments that had a direct impact on the Hammer formation and its follow-through to profit target levels.

That cannot be coded in some computer nor screener.

It's the missing critical information that backtesters of Hammers that go the computer code route instead of the manual that would require them to study each trading day one by one on its own merits...

Merits that's determine by key economic reports, price action of other trading instruments and other regular schedule market events.

Simply, trading via Hammers all by itself without understanding the why's is welcoming that usual discovery...

Hammers aren't reliable.

In addition, you said something very interesting...

...The downside is that very few trades would appear for those who are trying to master their first candle patterns...

To answer your question on how to handle this scenario...

Make it a routine every trading day to maintain an in-depth journal where you've documented the key economic reports times on your charts or notes, regular schedule market events times on your charts or notes along with monitoring other key markets that have an impact on your trading instruments...

To increase the odds after you learn how to use that information that your able to adapt when market conditions changes and you'll have developed that one key component that can't be taught but only learned...

Trading with confidence.

The reason why few trades will appear is because of the why's and it gives you time to master the pattern, gain confidence while you slowly become profitable.

Then...later on in your trading career...you'll begin to see those other variations of Hammer patterns that allows you to have more trade opportunities.

Eventually, you become that computer code (screener) because you can process much more information.

That's really what is meant by that statement we see so often and states that trading itself can't be taught...

You have to learn it on your own after someone hands you some key pieces to the puzzle.

Simply, that's all I'm doing in this thread and trying to encourage others to do the same in this thread that have some useful experience with Hammer patterns...

Present the key pieces of the puzzle and the rest is up to you on what you do with it.

This learning process (being able to put the pieces together into a coherent trading plan) is crucial to successful trading no matter what type of market it is that your trading.

All of this will not happen in a few days, few weeks nor in a few months...

It will take several years.

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

 

[NihabaAshi]

March 1st Wednesday 2006

Treasury Futures 5 Year T-Notes - ZF06M

Bullish White Hammer Pattern: inverse price action in the Yield (FVX.X)
Sub-group: continuation signal as a short position in ZF06M
Chart Interval: 15min
PT Levels: discussed below

I just wanted to do a follow-up to Treasury 5 Year Yield (index) of the T-Note ZF I attached to my prior message.

First of all, anyone that trades the treasury futures without paying close attention to the inverse price action of the respected yields...

That's a trader that will be missing a big piece of the puzzle in understanding treasury futures.

In addition, to add to my prior comments to BertH when he said the following...

...The downside is that very few trades would appear for those who are trying to master their first candle patterns...

Just because your only following one trading instrument doesn't imply there won't be Hammer patterns in other charts that have a direct impact on your trading instrument.

That's the reason why I've attached the FVX.X (5 Year Yield) chart to show that Hammer patterns in the Yields are also trade signals in the treasury futures eventhough there's no valid hammer pattern in the futures.

This effectively increases the odds by 2x of seeing Hammer patterns eventhough your only trading one trading instrument (ex. ZF06M).

Then...once you become more confident...

You can start doing what's been discussed in this thread as sister trades.

That's implies via the example of T-Note ZF that if your going to be trading ZF...

You should be watching ZN and ZB along with their respected yields for pattern signals.

Simply, a Bullish White Hammer pattern in ZB is also a bullish signal in ZF or ZN eventhough ZF and ZN do not have a valid Hammer pattern.

Therefore, there really isn't a downside based upon few trades unless your only looking at one chart for pattern signals.

Now...about those profit targets not shown on the Yield chart.

This particular Bullish Hammer pattern sub-group is a continuation signal although my 15min chart presentation is deceptive because you really can't see what had been occurring in the prior price action on the left side that's not shown in the chart.

As mentioned before a few times in this thread...when you get a continuation signal its a good time to increase your intervals to look for WRB profit targets after pt1 to allow you the opportunity to ride a trend.

When WRB's are reach and when to exit the trade is dependent upon your chart interval, key market events, other trading instruments et cetera that can be summed up in one word...

Experience.

This is where studying your charts prior to each trading day is crucial in understanding the price action and having a nice view of the entire playing field.

Expand your chart interval and you'll see that the 5 Year Yields have been in an obvious uptrend since about Jan 23rd 2006.

I know several swing traders of ZF, ZN and ZB that's been shorting the futures heavily because of what they see in the trend of the Yields.

Go back a few more trading days before Jan 23rd 2006 and you'll see where the turning point to the downside had occurred in the Eurex Fixed Income Derivative - BUND.

Know your trading instrument via monitoring all the markets that have a direct impact on the price action of your trading instrument and you won't have to worry about so few trades because there will be plenty of action for you to bite on.

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

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=999344</img>