Trading Hammers (revisited)

Discussion in 'Technical Analysis' started by NihabaAshi, Jul 26, 2005.

  1. August 3rd Wednesday,

    CME Emini - ER2

    Bullish White Hammer pattern

    10am est ISM Non-Mfg Survey produced a price action that resulted in a wide range body.

    1030am est EIA Petroleum Status produced a price action that quickly found some support...traversing that support into a White Hammer Line.

    http://online.wsj.com/public/resources/documents/b-econoday.htm

    NihabaAshi
     
    #51     Aug 3, 2005
  2. chud

    chud

    You mind sending me this information also?

    Thanks.
     
    #52     Aug 3, 2005
  3. Hi chud,

    PM sent.

    NihabaAshi
     
    #53     Aug 3, 2005
  4. mirtex

    mirtex

    Can I be next one on the PM list?
    Following this thread and its great, gives hammer trading new dimension.

    mirtex
     
    #54     Aug 4, 2005
  5. Hi, NihabaAshi.

    Great thread, thanks.

    I want to receive a PM too :)
     
    #55     Aug 4, 2005
  6. Thanks for Pm, Nihaba ))

    Here is a 3 min. chart for mini Russel today.

    Is that a valid white hammer at 21:03 ?
     
    #56     Aug 4, 2005
  7. mogul

    mogul


    yes, but it didn't quite workout :D

    hammers are very easy to program and test for individually

    hammers on daily bars are much better in er2 than intraday
     
    #57     Aug 4, 2005
  8. No...that's not one of the valid Hammer patterns I'm discussing in this thread.

    However, it is a Hammer Line.

    In fact, I've already discussed earlier in the prior thread Trading Hammer thread (not sure if I have in this thread) why that's not a valid White Hammer Pattern and the valid pattern I've been discussing is visually represented in the charts I've posted so far in this thread.

    Here's some of the criteria that explains why its not a valid pattern on in your chart:

    * Low of white hammer line < lows of the prior three intervals.

    * Depth (length) of long lower shadow of the white hammer line > depth (length) of the lower shadows of the prior three intervals.

    However, lets pretend it is valid via my criteria discussed above and in prior thread (I'll discuss more later as this thread progresses) or its valid via your own personal criteria...

    The third key to successfully trading hammers is the trade management after entry.

    The second key (not discussed yet) is the entry signal which is different from the pattern signal.

    Thus, there's two types of signals...

    * Pattern signal: confirmation that a Hammer Line has traversed into a Hammer Pattern.

    * Entry signal: Just because its a valid Hammer Pattern doesn't mean its tradable.

    Also, backtesters that don't understand price action itself will most likely get fixated on the pattern signal itself and assume all is tradable...

    A big mistake.

    Now...back to that third key...the trade management...pretending it is a valid signal.

    After you enter the trade...you must have a designated price for your trading instrument that tells you its time to adjust your initial stop/loss protection into either a breakeven trailing stop or 1 tick better than breakeven trailing stop (1 tick profit).

    For me...whenever I trade ER2...that magic number is +0.50

    Thus, as soon as ER2 moves +0.50 in my favor (in comparison to my entry price...not in comparison to the pattern signal price)...

    I move my stop into a breakeven stop.

    In your chart example...pattern signal is at 678.50 (pretending its a valid signal) and my rules requires me to get a better entry than that price anywhere within the entry signal interval.

    Lets use 678.40 as an entry price.

    That means as soon as ER2 tested 678.90 I move my stop into breakeven stop.

    On your chart...ER2 hit 678.90 around 21:18

    Thus, worst thing that could have happen in your trade would have been a breakeven trade or a 1 tick profit.

    As I mentioned...its not a valid pattern via my criteria nor via what's represented in the charts I've posted so far.

    However, I do know it can be a valid pattern via someone elses criteria.

    Thus, since you said its valid...

    Why is it valid to you (what's your rules that make it valid)???

    That's what this thread is for...for all participants to explain what's valid or not with specific info...

    Giving each other a different perspective on Hammer pattern recognition.

    Also, your correct...Hammers can be easily backtested but only the generic stuff you see in most candlestick books.

    However, as I mentioned before in this thread.

    I'm not talking about generic Hammer patterns and is the reason why I'm not going to use any references to any particular book.

    Yet, any book is a good place to start to understand some basic info.

    Simply, in this thread, I'm discussing patterns you will not find in candlestick books and talk beyond their pattern signal.

    I'm talking about the price action that's required prior to the Hammer Line and after the Hammer Line.

    I'm also going to slowly talk about the trade management after the pattern signal.

    The stuff I'm talking about can only be manually backtested and can't be backtested via some computer code.

    Further, after manually backtesting anything regardless if it deals with candlesticks or not...

    To learn the price action...your going to need to study your live-recordings.

    Without it...trading via candlesticks will be difficult for most.

    P.S. I'm on a camping trip up in the mountains at a remote cabin...I'm slow to respond to posts due to the ancient telephone system they have up here.

    I'll be back on Sunday. :cool:

    NihabaAshi
     
    #58     Aug 5, 2005
  9. Quick Follow-Up...

    A few of the criteria for a valid white hammer pattern (prior message may have implied incorrectly that the below rules makes it invalid):

    * Low of white hammer line < lows of the prior three intervals.

    * Depth (length) of long lower shadow of the white hammer line > depth (length) of the lower shadows of the prior three intervals.

    Once again as a reminder...there are numerous sub-groups of white hammer patterns and I'm only discussing one particular sub-group in this thread so far.

    Other traders may trade other sub-groups of white hammer patterns and hopefully they post charts of their favorite type of white hammer pattern along with explaining a little info about its price action.

    NihabaAshi
     
    #59     Aug 5, 2005
  10. mirtex

    mirtex

    Excellent thread, really nice one.

    Thanks

    mirtex
     
    #60     Aug 6, 2005