Hammer Friday - 29th Jan 2010

O

oguru

Member
#1
#1
Hello Friends,

Good afternoon to you all. Hope you all read my previous thread on "Evening Star" happened on last week of Dec-2009. After the formation the index went down from 5300 to 4800.

Now on 29th Jan 2010, we observed a reversal from Bearish mode to Bullish Mode. Last Friday was a Hammer day.

Definition :

The Hammer is comprised of one candle. It is easily identified by the presence of a small body with a shadow at least two times greater
than the body. Found at the bottom of a downtrend, this shows evidence that the bulls started to step in. The color of the small body is not important but a white candle has slightly more bullish implications than the black body.

  • The lower shadow should be at least two times the length of the body.
  • The real body is at the upper end of the trading range.
  • The color of thebody is not important although a white body should have slightly more bullish implications.
  • There should be no upper shadow or a very small upper shadow.
  • The following day needs to confirm the Hammer signal with a strong
  • bullish day.

After a downtrend has been in effect, the atmosphere is extremely bearish.
The price opens and starts to trade lower. The bears are still in control. The
bulls then step in. They start bringing the price back up towards the top of
the trading range. This creates a small body with a large lower shadow. This
represents that the bears could not maintain control. The long lower shadow
now has the bears questioning whether the decline is still intact.

To Sum up The Bearish sentiment is over at least in the short term. Let us see the effects of Hammer in the upcoming days if this week.


Stay tuned
Regards,
Oguru

PS: The pattern for reference.
 
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A

AW10

Well-Known Member
#2
#2
Thanks OGuru for highlighting the hammer formation on Friday.
This is one of my favourite setup which gives low risk entry. It has appeared after a downtrend, hence lot more powerful here. Today we have green candle which also confirms it.

So IMO, we have made short-term low for atleast 3/4 days. That doesn't mean that we are in bullish on all timeframe. Larger trend is still unconfirmed down as we have made Lower Swing Low below prev swing low of 4920, Until we have new Swing high above 5300, we are either going down or going sideway. Lets see how market unfolds next.

Even stronger signal for me comes when the low of this hammer is broken. That means the bulls who have made appearance on friday have lost the ground/ or out of the mkt and hence market has broken the strength of hammer.. That is signal for me to cut any more longs and start preparing for shorts. Till then enjoy the short term bottom and the brightness of green mood.

Happy Trading
 
V

vinnie

Member
#3
#3
AW10 said:
Thanks OGuru for highlighting the hammer formation on Friday.
This is one of my favourite setup which gives low risk entry. It has appeared after a downtrend, hence lot more powerful here. Today we have green candle which also confirms it.

So IMO, we have made short-term low for atleast 3/4 days. That doesn't mean that we are in bullish on all timeframe. Larger trend is still unconfirmed down as we have made Lower Swing Low below prev swing low of 4920, Until we have new Swing high above 5300, we are either going down or going sideway. Lets see how market unfolds next.

Even stronger signal for me comes when the low of this hammer is broken. That means the bulls who have made appearance on friday have lost the ground/ or out of the mkt and hence market has broken the strength of hammer.. That is signal for me to cut any more longs and start preparing for shorts. Till then enjoy the short term bottom and the brightness of green mood.

Happy Trading
Click to expand...
Thanks for the new post. Again thanks to Oguru for showing us a delightful bright light towards wealthy destiny :)

I am not completely agree with you - AW10, specifically after "IMO" section. The reversal patterns doesn't relate to technical view point and it doesn't tell you that the reversal is severely sharp or blunt. Having said that I would also add that the pattern gives a psychological insight with the strength of the trade happened. There are no such signals called strong / weak. The idea is if the trade closes higher than previous days close and opens higher than previous days high, then the bulls and bears are still in tussle, but bulls grip are much stronger than bears. Hence we need to be Bullish in all respect.

What happened on Friday was a Hammer and what happened today (01 Feb) was also a hammer with a large body than previous. Also, taking volume into consideration, it was lower than Friday's trade. So bears with low volume was beaten by bulls with moderate volumes. These reversals doesn't generally indicate the trend to be short term bottoms or sideways and moreover it won't be possible that the value towards index should be touching 5300/5200. But for sure there will be a bounce / hit towards next resistance till the time it accumulates it's strength on existing support.

I am sure one sharp bullish reversal should happen if the real Hammer's psychology needs to be considered and proven specifically for our MARKET ;)

Wish you all lucky trading after hammer.

-Vinnie.
 
A

AW10

Well-Known Member
#4
#4
Vinnie. Good to know your views on it. Below are my views on what you have mentioned..
The reversal patterns doesn't relate to technical view point and it doesn't tell you that the reversal is severely sharp or blunt. Having said that I would also add that the pattern gives a psychological insight with the strength of the trade happened. There are no such signals called strong / weak.
Click to expand...
I don't think so that there is no strong/weak signals. Will u treat following hammers as same
1) Which has got no upper tail,
2) Which has got 10% upper tail
3) Which has got 40% upper tail.

If you look at psychological interpretation of them, then they pass the different message about strength of bullish force on display. I would certainly trust 1) occurrence more then the 3) from above list.

Similarly, if you bullish hammer, after few bullish days, then I will discount the message given by this hammer.. Just chk out the hammers on 4th-Jan/12-Jan/ 22-Jan.

Hammers have a success rate of about 60%, but if I need to increase my odds then I prefer to read additional signals and qualify the strength of hammer. I can't be theoretical in my trading and got to risk my money where odds are stacked in my favour.

The idea is if the trade closes higher than previous days close and opens higher than previous days high, then the bulls and bears are still in tussle, but bulls grip are much stronger than bears. Hence we need to be Bullish in all respect.
Click to expand...
Might be good enough for you. Nothing wrong with it. . But I need something more then this to risk my money..

What happened on Friday was a Hammer and what happened today (01 Feb) was also a hammer with a large body than previous.
Click to expand...
I read both hammers differently. On Friday, previous bearish trend continued in first half and then Bulls have appeared which has overcome the bearish pressure. So it was reversal day for me.
On Monday, it was just the initial exuberance of gap orders that made the low, but then bulls continued there journey from yesterday. So it was continuation day for me.

And today, we see the effect of continuation hammer, which is wiped out to large extent. This gives me hidden signal about the weakness of bullish trend, and strength of bearish trend..
Bullish force of Reversal hammer is yet to be tested. If bears take out the reversal hammer as well, then I know who is more strong at the moment ?

These reversals doesn't generally indicate the trend to be short term bottoms or sideways and moreover it won't be possible that the value towards index should be touching 5300/5200.
Click to expand...
I would never know after 1 bar, whether it is short term bottom or not. but with all the background of hammer formation, I do take it as short term bottom in just 1 bar. That is as fast as I can get without depending on all lagging indicators to tell me after 3days or 5 days that we have made the bottom. So I take a chance, knowing very well that my risk is for 100 points or 1 bar. Ofcourse, I have 50/50 chance of being right or wrong.. so who cares.. atleast my risk is small now (in this case it is 1 daily bar), and I see better odds in my favour.. so take the trade. There is no guarantee of being 100% right in the market. So it is matter of individual's strategy of trading.

I very well accept your arguments and they are not wrong. It is just that I think and trade differently cause if I do what everybody else does then I would be getting what everybody is getting and certainly I don't want that.

Happy Trading
 
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T

trader.trends

Well-Known Member
#6
#6
AW10 said:
if I do what everybody else does then I would be getting what everybody is getting and certainly I don't want that.

Happy Trading
Click to expand...
AW10
You would definitely want everybody in the market to do what you did after you did it, that leads to a profitable trade.:):)

Nice lucid explanations, as always.
 
A

AW10

Well-Known Member
#7
#7
You are right TT. As a trader, I can make money only when others chase the direction, in which I am already in. It is not that I am always right, but that is the foundation of my entry rules in most of my systems. Enter as early as possible and with as low a risk as possible. It is not random entry aginst the trend, but obviously some of my tested setup have to appeared. Strong Hammer in target support zone is one of them.

By sharing my knowledge, though I am trying to help others to gain their edge..
Hoping that atleast 1 trader (more is better) will be able to benefit from it..

Happy Trading
 
SwingKing

SwingKing

Well-Known Member
#8
#8
AW10 said:
Vinnie. Good to know your views on it. Below are my views on what you have mentioned..

I don't think so that there is no strong/weak signals. Will u treat following hammers as same
1) Which has got no upper tail,
2) Which has got 10% upper tail
3) Which has got 40% upper tail.

If you look at psychological interpretation of them, then they pass the different message about strength of bullish force on display. I would certainly trust 1) occurrence more then the 3) from above list.

Similarly, if you bullish hammer, after few bullish days, then I will discount the message given by this hammer.. Just chk out the hammers on 4th-Jan/12-Jan/ 22-Jan.

Hammers have a success rate of about 60%, but if I need to increase my odds then I prefer to read additional signals and qualify the strength of hammer. I can't be theoretical in my trading and got to risk my money where odds are stacked in my favour.


Might be good enough for you. Nothing wrong with it. . But I need something more then this to risk my money..


I read both hammers differently. On Friday, previous bearish trend continued in first half and then Bulls have appeared which has overcome the bearish pressure. So it was reversal day for me.
On Monday, it was just the initial exuberance of gap orders that made the low, but then bulls continued there journey from yesterday. So it was continuation day for me.

And today, we see the effect of continuation hammer, which is wiped out to large extent. This gives me hidden signal about the weakness of bullish trend, and strength of bearish trend..
Bullish force of Reversal hammer is yet to be tested. If bears take out the reversal hammer as well, then I know how is more strong at the moment ?


I would never know after 1 bar, whether it is short term bottom or not. but with all the background of hammer formation, I do take it as short term bottom in just 1 bar. That is as fast as I can get without depending on all lagging indicators to tell me after 3days or 5 days that we have made the bottom. So I take a chance, knowing very well that my risk is for 100 points or 1 bar. Ofcourse, I have 50/50 chance of being right or wrong.. so who cares.. atleast my risk is small now (in this case it is 1 daily bar), and I see better odds in my favour.. so take the trade. There is no guarantee of being 100% right in the market. So it is matter of individual's strategy of trading.

I very well accept your arguments and they are not wrong. It is just that I think and trade differently cause if I do what everybody else does then I would be getting what everybody is getting and certainly I don't want that.

Happy Trading
Click to expand...
Absolutely Spot on !! :thumb:

Think out of the box guys. This post just reflects the need of doing so ...

Tc.
 
O

oguru

Member
#9
#9
raunakagarwal said:
Absolutely Spot on !! :thumb:

Think out of the box guys. This post just reflects the need of doing so ...

Tc.
Click to expand...
Out of Box !!! Yeah Its Out of Box thinking Sir. Hope you all might have noticed the effect of Hammer Today.
 
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