Hi rainman2, Thanks for the charts... On your recent IWM (exchange traded fund) daily chart there's a key candlestick s/r zone via the Dark WRB that occurred on June 5th... http://www.elitetrader.com/vb/attachment.php?s=&postid=1108733 Whereas it has already test the key candlestick s/r zone of Jan 3rd (White Hammer Line with long lower shadow). In addition, via an email discussion, someone (a swing trader) brought to my attention the Bullish White Hammer pattern via the 120min chart that signaled on June 14th for the mini-sized Dow YM futures. June 14th is another key candlestick s/r zone to monitor. Mark (a.k.a. NihabaAshi) Japanese Candlestick term
Hi NihabaAshi, I have a question about key candlestick s/r zones. I can understand why the hammer on January 3rd and June 8th are key s/r zones but not the June 5th and June 14th candles. Let's say future price action closes above the high of the June 5th dark WRB, wouldn't price still run into major resistance at the high of the June 2nd dark hammer line? What's more important, the s/r zone of the WRB of 6/5 or the swing high of 6/2 in determining confirmed reversal? Or would a close above the high of the 6/6 dark hammer give a more risky but tighter stop entry? Also, being that the 6/14 candle is neither a WRB or a long shadow family member, should it be a key s/r zone or is it just confirming support of the 1/3 bullish hammer? Or is it a key s/r zone because its a swing low? By the way, I'm using the IWM daily chart for these questions? As always, thanks in advance, rainman2
Hin rainman2, WRBs are key candlestick s/r zones. The June 5th WRB, price hasn't tested the entire body of the WRB. Therefore, its still a key zone to monitor for any kind of pattern signal if/when prices retraces back upwards to it. As for swing points...I really don't look at them to determine which is important via comparison to WRB's. It's just isn't important info. However, I only put value in swing points if they are involved in any pattern signals or WRBs. No pattern signal or a WRB...I tend to ignore a swing point if price retest that swing point. Also, my comments about June 14th was via the 120min YM chart that has nothing to do with the daily chart of IWM. http://www.elitetrader.com/vb/attachment.php?s=&postid=1109463 Once again, any price action that represents changes in supply/demand is a key s/r zone. More often than not...such is represented via WRBs, Hammer patterns and any other pattern that involves WRBs or Hammer Lines. With that said...I can now answer a question that you should be concerned about... Your question is phrased in a way that your assuming when prices reach a swing point or s/r zone that price will do something to catch your attention. I believe your question is that way because you use s/r levels or zones for entry signals. I on the other hand use them for profit targets only. What I'm saying (once explained in the thread before)... WRBs that form after entry in a trade are excellent profit targets and so are WRBs that formed before your entry. The same is true for any Hammer pattern that formed before entry (I've posted two chart examples of such in this thread)...they too make excellent profit targets because they represent a prior level where there was a key change in supply/demand. For example, lets pretend your a swing trader and you went Long today for whatever reasons. Price moves upwards without producing any White WRBs to tell you its time to exit and then one day it reaches that prior Dark WRB of June 5th. That's an excellent profit target and if the swing point of June 2nd was a pattern signal for you...that too can be used as a profit target. There's nothing wrong with using s/r info for entry signals...I just have more success using them for other things and not for entry signals. In fact, if I do get a pattern signal that just happens to occur within the price range of a s/r zone...depending upon the price action... I tend to decrease my position size (more often than not) because things tend to get juicy with an increase in volatility... Decreasing my size gives me a little more control on my risk exposure. Mark (a.k.a. NihabaAshi) Japanese Candlestick term
NihabAashi, In these cases you decrease your position size mainly due to the increase in volatility, not necessarily due to the signals being any less reliable. Is this correct?
Hi Flashboy, Yes...due to the increased volatilty and its a time period when most of my trading mistakes occurs within the range of candlestick s/r zones. However, I normally trade volatility and will only make special adjustments (most of the times) via decreasing my position size if that volatility occurs within the range of a key candlestick s/r zone. Hammer patterns usually have increasing volatilty as that long lower shadow forms and is one of the reasons why I like Hammer patterns. Mark (a.k.a. NihabaAshi) Japanese Candlestick term
June 30th Friday Eurex Index Derivative - DAX Bullish White Hammer Pattern Sub-group: continuation signal Chart Interval: 10min It's been a dry spell of pattern discussions until last night when someone email me about this pattern in the DAX. Market held its gains from Thursday's FOMC announcement rally. Mark (a.k.a. NihabaAshi) Japanese Candlestick term
Hello Nihaba - First of all I want to say many thanks for your great threads! I read both hammers threads from beginning to the end and it influenced my trading in a great way (I began to see signs of reversals where I didn't before and it helped much to my current strategy). But it still seems that I don't understand many things about candlestick reversal patterns (I mostly study hammers as your threads are about them), especially the previous price action needed to form a proper pattern (not just line, according to your therminology). So I decided to participate in hope to know hammers better and more. I'll post some charts where patterns seem to me to be hammers. I'd really appreciate if you look at them and tell me if I am right or wrong and if wrong, then how can I study to be right etc. Thanks in advance! Janis
Hi Janis, The below chart (possbile White Hammer pattern) I'm unable to tell if the long lower shadow on the White Hammer Line has a length that's longer than the lengths of the lower shadows of the prior three intervals. http://www.elitetrader.com/vb/attachment.php?s=&postid=1120094 Your other chart is a valid Bearish Dark Inverted Hammer pattern. http://www.elitetrader.com/vb/attachment.php?s=&postid=1120096 Thanks for the charts. Mark (a.k.a. NihabaAshi) Japanese Candlestick term
Hi Mark - Sorry for too small first chart, I never posted charts here before and have not much experience in posting pictures of optimal quality. Great to hear from you that I successfully found valid hammer patterns. If you don't mind I have a couple more of questions to you related to them: 1) I currently use volume as a confirmation (must be higher than previous bar). Is it really as important? I'm asking cause if I remember right you once said that you don't use it, but at the same time you also once said it's a big hint... 2) Yesterday I re-read this thread once again and especially stopped by your post where you explained the difference between trend-reversal and counter-trend hammer patterns. If I understand it right, trend reversals should be more reliable. I looked through your examples of trend-reversal hammer patterns and found that they are often based on prior price action similar to double tops/bottoms. The questions is: is it the way to identify trend-reversal pattern vs. counter-trend? I mean if we have a hammer off the double top/bottom and similar chart patterns it's a trend reversal and if we have a hammer off the lower low (if we're in a down trend) it would be a counter-trend trade with lower probability? Would be great to listen to your explanations about this reversal vs. countertrend stuff cause it took a month for me to finally begin to realize the difference between these (hope I began to realize it right )... Wish happy holiday to all people in US! Janis