I'm looking at yesterday's hammer on tsco.L but i wasnt sure if i should buy this stock as the hammer position is just too high(its body is above the previous day's body) (image uploaded)
If you want to become a trader, you need to understand that candlesticks and bars are exactly the same thing. What you need to focus on is the overall context, not just one bar or candlestick. You need to ask yourself questions like: What is the overall market currently doing? What is the relative strength of the stock compared to the market and its industry? Did the stock drop like a rock during the last few days, or is it a gentle pullback? What does the overall chart pattern of the stock look like, not only on the daily chart but also on the weekly chart? What was the volume like during the pullback? Etc. Only once you’re satisfied with the answers to these questions, then you start focusing on the last bar to determine whether or not it is a change-in-direction bar exhibiting buying pressure, or whether it is just a meaningless bar given the overall context. In other words, your question is based on a very mechanical approach, and mechanical traders don’t make money. Instead of asking whether the hammer’s body is too high, you need to start asking better questions, such as, “How do I develop trading logic?” However, I do understand that you need to start somewhere, and that things are easier said than done. We all have to go through this.
A trendline drawn from the lows may give you some further confluence. If you are scalping I would expect there to be several points available above the hammer.
WAYYY too much downward pressure to buy. Did the chart look like this? Very likely dotted line will be touched before it could head north again. Probably wouldnt buy for...20+ bars? I dont see enough candles to get a good read though
It depends on your time frame. For a swing trade I like the set up. Hammer pattern with above normal volume. I would take the trade if the price exceeded the prior days high. I would play it with a tight stop. (Just below the opening range)