Hi, Thanks for the chart example @ http://www.elitetrader.com/vb/attachment.php?s=&postid=2907377 It clears things up for me. That's not one of the specific three price actions I'm discussing in this thread. However, as mentioned many times in this thread...there are many variations of each known candlestick pattern and your variation is one of the ones I've documented in my personal candlestick pattern notes. By the way, you shouldn't remove the time, date and trading instrument name from your chart. To do such implies you're applying Japanese Candlesticks in isolation which is something I mention frequently in this thread not to do. Simply, the key is to first understand the price action you're trading prior to the appearance of whatever trade signal your using. That understanding begins when you know what you're trading, open & close times, how other key markets influence it etc cetera. The particular variation of a Bullish Dark Hammer pattern I'm discussing in this thread involves an engulfing position element. In contrast, your variation of a Bullish Dark Hammer pattern involves a harami position element in reference to that "inside bar or inside candlestick" that's not significant unless the dark hammer line is a Dark WRB which in your chart example. You have now learned to categorize your hammer patterns to have a better understanding of the performance levels of each particular variation. For example, I've categorized the bullish dark hammer pattern in several sub-groups involving engulfing, tweezer, harami, doji and each of those sub-groups have there own many different variations. Candlestick Pattern --> Sub-Groups --> Variations (e.g. Bullish Dark Hammer pattern --> Engulfing ---> WRB) Thus, I highly recommend you read the entire thread to understand that I'm specifically talking about a particular variation of the Bullish Dark Hammer pattern. I'm also specifically talking about a particular variation of the Bullish White Hammer pattern along with talking about a particular variation of the Bearish Dark Inverted Hammer pattern. Therefore, the question is not if your chart variations are valid. However, if you're asking me if they represent the particular variation sub-group of the Bullish Dark Hammer pattern I'm discussing in this thread... They do not even though they are a valid variation of the Bullish Dark Hammer pattern. Simply, your chart represents a variation from the harami sub-group whereas my charts throughout this thread represent a variation from the engulfing sub-group of the Bullish Dark Hammer pattern. Mark
September 14th Tuesday Euronext CAC40 Futures Bullish White Hammer Pattern Sub-group: swing point signal Chart Interval: 2min Hammer patterns are part of the "Long Shadow Family" as stated early in this thread and the Long Shadow Family can be used as support/resistance (s/r) levels or zones. In fact, it's very easy to see how they represent key changes in supply/demand and change in volatility if/when they produce a swing point (reversal) or strong continuation price action. Thus, if you're not interested in Hammer patterns as trade signals...they are still an excellent source of s/r levels or zones to help you identify trades (Long or Short) later in the price action after the hammer pattern. The attached chart shows a highlighted green price area that's still useful to confirm whatever trade signal you may be using...useful until the price action traverses through the green highlighted area shown on the chart. In contrast, the highlighted gray area implies it wasn't an important price area as a key change in supply/demand until it got confirmed as a swing point. Simply, most hammer patterns are not key changes in supply/demand unless confirmed later in the price. It's after the confirmation when they can be used as s/r levels or zones. However, if price action reaches the highlighted green area on the chart and your trade signal (whatever that may be) doesn't appear...don't take the trade because s/r levels or zones are not trade signals by themselves regardless to the sources of the s/r areas. Mark
November 9th Tuesday 2010 Euronext CAC40 Futures Bullish White Hammer Pattern Sub-group: swing point signal Chart Interval: 3min (repeat of an earlier message post about the same type of price action for price action traders) Hammer patterns are part of the "Long Shadow Family" as stated early in this thread and the Long Shadow Family can be used as support/resistance (s/r) levels or zones. In fact, it's very easy to see how they represent key changes in supply/demand and change in volatility if/when they produce a swing point (reversal) or strong continuation price action. Thus, if you're not interested in Hammer patterns as trade signals...they are still an excellent source of s/r levels or zones to help you identify trades (Long or Short) later in the price action after the hammer pattern. The attached chart shows a highlighted green price area that's still useful to confirm whatever trade signal you may be using...useful until the price action traverses through the green highlighted area shown on the chart. That "usefulness" can be translated into identifying swing points, reaction points, entry signals, stop/loss management or profit targets. However, if price action reaches the highlighted green area on the chart and your trade signal (whatever that may be) doesn't appear...don't take the trade because s/r levels or zones are not trade signals by themselves regardless to the sources of the s/r areas. Last of all, via correlated price actions, the same key change in supply/demand is also valid for Eurex FDAX ($DAX_F) and Eurex DJstoxx50 futures. Mark
Hi , I have an issue that I ran into while reading this thread and would like to make this certain issue clear for others that may have came across it. For the dark inverted hammer subgroup reversal. I was wondering if it is a REQUIREMENT to have any bars to engulf BETWEEN the WRB and the DIH. From reading the thread I think the answer is yes. At least ONE of the three prior intervals needs to be engulfed by the Upper shadow to qualify for the DIH Reversal subgroup discussed in this thread. Before I thought the Dark Inverted Hammer reversal could be Immediately after the White WRB. See attached. Mark , am I correct that this is NOT valid according to your criteria? P.S. a side observation is that it was also bumping into a previous Resistance area because there was a long Upper shadow on that white WRB on the left of the chart. Thank you.
The attached DOESN"T meet the criteria in this thread because the white bar goes above the highest of 3 prior intervals of the dark hammer but pretend it did to answer my question about the priceaction AFTER the dark hammer. For a Dark Bullish Hammer I remember there being confusion on whether the white engulfing line had to be the very next interval after the dark hammer or if it could be within two intervals? I don't believe the entry or trade management has been discussed for the bullish dark hammer. I personally enter at any point below the white close and the open of the dark hammer. I like the initial stop a little tighter on this one right below the open of the white line not below the hammer.
Hi, Thanks for the charts. There are different sub-groups of Dark Inverted Hammer (DIH) and the one that's being discussed in this thread has a requirement that the upper shadow of the Dark Inverted Hammer must be engulfing the body of any interval that's between the WRB and the Dark Inverted Hammer. Simply, there must be intervals between the WRB and the Dark Inverted Hammer for this particular subgroup of the DIH.
Trade Management The initial stop/loss protection has not been discussed. The only thing that's being discussed in this thread is that you should use a trigger price that tells you it's time to move your initial stop/loss protection to a profitable trailing stop. That trigger price will be different from one trading instrument to another and dependent upon the volatility at the time of the trade. As for the initial stop/loss protection placement...I need to know more about the trading instrument itself, market context itself and volatility itself at the time of the trade to know where to place my initial stop/loss protection. I believe in using an emergency fixed hard initial stop/loss protection (not a mental stop) that has nothing to do with market context or volatility. It's just an initial stop/loss protection you want to automatically put in place upon entry in a trade just in case you have an emergency (e.g. computer crash). Next, the first stop adjustment is a hard stop/loss protection based upon the price action your trade signal occurred within, market context and volatility. Thus, my emergency hard stop is usually the same fixed hard stop for every trade but my stop/loss protection adjustments is rarely the same from one trade to the next trade because it's dependent upon the market context and volatility at the time of the trade. My point is that I don't just place an initial stop and walk away from my computer. In contrast, I place an emergency stop and then immediately begin managing my initial stop/loss protections via making adjustments to a smaller stop/loss as the trade progresses. Then if the trade is profitable and if the trigger price gets hit...I then make an adjustment to move from a losing hard stop/loss to a profitable trading stop. For example, currently I'm trading the Russell 2000 Emini TF futures. Prior to 2008 my initial stop/loss protection was -4 points as an emergency stop that's automatically placed when I enter a trade. In contrast, today in a different type of volatility conditions, my emergency hard stop upon entry is -2 points due to the overall volatility contraction. The lower the volatility has less trade opportunities for me and the more difficult it becomes to bounce back from a losing trade. Thus, I needed to make my emergency stop "smaller" to lower my risk of having a losing trading day. Yet, I rarely let an emergency hard stop get hit which is why I adjust that emergency hard stop into a smaller initial stop/loss placement and that adjustment is rarely the same from one trade to the next because of the changing market context and volatility. Further, I believe we should know enough about the price action to be able to determine a trade isn't going to work prior to letting any type of stop get hit (stop/loss or profitable trailing stop). I consider this an ART (discretion is involved). Thus, as stated in this thread...market context and volatility is a critical element of trading and it involves discretionary variables due to the fact every trading day is not the same. Mark
Very good , thank you. I agree that different conditions and volatility require different parameters for managing each trade.