Also, a large daily range and/or large volume give a hammer better odds. Some market lore surrounding hammers, like the necessity of a tiny upper shadow, is bunk. Extensive backtesting has shown that hammers with a moderate shadow fare much better. While today's hammer didn't close above the open, it does look a bit stronger than Monday's based on volume (strong) and range (Ok, but nothing special).
I think buying these tails at support in an oversold market is a good risk reward set up. Maybe you want to wait for conformation with an up day, and maybe you donât thats trading. Just use stops and put on a trade.
I don't know. It seems everyone is convinced that we're going to have another "leg down" and create new lows before things turn around for stocks. So far this week, the market has had a different plan. When you start hearing something like "another leg down" everywhere (ET, Youtube videos by "expert" TA guys, financial press, etc.), be very skeptical...