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When Perfect Hammers Fail
- Thread starter yiftafr
- Start date
Yes, to some degree. Hammers are usually formed when there is a spike of panic volume that causes then down thrust that is short term exhausting the sellers and should lead to a short squeeze (bounce) before going whichever way its going to go.
If you get a hammer and it doesn't reverse it is indicative of someone wanting to get out and they either have a) volume, ie lots of shares to sell or b) no time, meaning that for whatever reason they are in a hurry to dump what they are holding.
I would say a confirmation of this would be a close below the low of the previous hammer, you could try backtesting it with say:
Stock is below some MA (50,200, 20 whatever timeframe you want to see)
hammer formed
close below hammer short with a stop above that day
I find that there is good follow thru on failed hammers and stars since the ppl who got it wrong have to right their position.
The best types are when you get a hammer than a gap down, ie all the hammer buyers are now sellers, these gaps tend not to fill (actually I trade these usually the other way, meaning a shooting star then a gap up)
If you get a hammer and it doesn't reverse it is indicative of someone wanting to get out and they either have a) volume, ie lots of shares to sell or b) no time, meaning that for whatever reason they are in a hurry to dump what they are holding.
I would say a confirmation of this would be a close below the low of the previous hammer, you could try backtesting it with say:
Stock is below some MA (50,200, 20 whatever timeframe you want to see)
hammer formed
close below hammer short with a stop above that day
I find that there is good follow thru on failed hammers and stars since the ppl who got it wrong have to right their position.
The best types are when you get a hammer than a gap down, ie all the hammer buyers are now sellers, these gaps tend not to fill (actually I trade these usually the other way, meaning a shooting star then a gap up)
Neither of those are hammers. The criteria for a hammer are:
1. Must come during a DOWNTREND.
2. Small real body at or very near the top of the the candle.
3. Lower shadow at least 2x size of real body.
You may be referring to a Shooting Star which is the opposite of a hammer and comes during an UPTREND. However, the candles I think you are reffering to still do not portend a top reversal. The forst one has a real body that is too large and the second has too long a lower shadow.
Also, candles normally imply a CHANGE in direction, but not necessarily a move in the opposite direction. The change may be sideways. A move in the opposite direction is more likely when the pattern forms near support/resistance. Also, I would discount a single candle pattern if it occurs during a strong trend like the one on your chart. In this case I would not look for a candle pattern as an opportunity to go short, but rather as a heads up to look for an opportunity to enter long with the trend.
1. Must come during a DOWNTREND.
2. Small real body at or very near the top of the the candle.
3. Lower shadow at least 2x size of real body.
You may be referring to a Shooting Star which is the opposite of a hammer and comes during an UPTREND. However, the candles I think you are reffering to still do not portend a top reversal. The forst one has a real body that is too large and the second has too long a lower shadow.
Also, candles normally imply a CHANGE in direction, but not necessarily a move in the opposite direction. The change may be sideways. A move in the opposite direction is more likely when the pattern forms near support/resistance. Also, I would discount a single candle pattern if it occurs during a strong trend like the one on your chart. In this case I would not look for a candle pattern as an opportunity to go short, but rather as a heads up to look for an opportunity to enter long with the trend.
oops. Sorry, I didn't see the right hand part of the chart when I first looked. I thought you were reffering to other candles.
You are right. Those are hammers. But neither has yet failed. They have only failed with a CLOSE below the lower shadow. That is one of the challenges with hammers - you have to be willing to risk down to the bottom of the shadow and sometimes that makes the risk/reward ratio unacceptable.
You are right. Those are hammers. But neither has yet failed. They have only failed with a CLOSE below the lower shadow. That is one of the challenges with hammers - you have to be willing to risk down to the bottom of the shadow and sometimes that makes the risk/reward ratio unacceptable.
Quote from Bitstream:
in strong trends hammers, shootin' stars'n'dojies usuallly mean shite, other than a huge buyin' opp for hungry buyers in need of u money.
I think you are wrong. A doji at the high, with a break of the low of doji on a high time frame signals a reversal of trend, plain and simple.
Quote from yiftafr:
Is the fact that 2 very clear hammers (one even dragonfly doji) failed to reverse means that the current trend is strong.
Look at the attached chart does it mean that the major uptrend could be over?
Thanks for the help
Hi yiftafr,
I don't consider anyone of those as valid Bullish Hammer patterns.
Read the thread Trading Hammers (revisited) to understand why I don't consider those Hammers valid for trading.
http://www.elitetrader.com/vb/showthread.php?threadid=52880
However, you may have your own rules for Hammer patterns that's different from my own.
Mark
(a.k.a. NihabaAshi) Japanese Candlestick term
One method of trading hammers that I have found somewhat reliable is this. I use standard Bollinger bands (20, 2) on a 5 minute chart. If the needle pops outside of the Bolling bands and the cnadle ends inside the the bands you can take it. It is usually good for a quick 2 point scalp on a range day. I did this trading IBM options for years and it seems to work for the S&P emini also.
Good Luck,
4re
Good Luck,
4re
Quote from dandxg:
I think you are wrong. A doji at the high, with a break of the low of doji on a high time frame signals a reversal of trend, plain and simple.
this kinda stuff happens all da time on da openin' range'n'is there to fool as many traders as possible into liquidation..stock reverses but just by a few c, after pigmen get hold of enough fuel u see a thick green candle shootin' up, or a series of candles with higher lows/higher highs; of course sometimes da stock reverts but u just cannot count on it...when there's buyin' interest ta goes out of da window, especially at open.