As I browse through some charts - stocks, etf's, futures - one thing really jumped out at me - how powerful some of these hammers on the daily charts are. Is it really as easy as finding the high volume hammer after a down move?
I don't know, but it's worth watching in my opinion. We can find some great charts and others that failed miserably, so the question is can high volume hammers on daily charts make money in the long run? And can you play enough of them so that the statistics stay in your favor? That's probably the biggest question - finding high volume hammers is easy, but how much capital would it take to maximize the return here and minimize the risks?
Maybe we can make this a thread about hammers with some examples - both good and bad - and perhaps this can help a trader or two out with a rather simple 'system'.
There's a few words of caution when playing these kind of trades:
1) You may have to take 3 hammers before one works. Part of trading hammers.
2) In order to get a 'qualified' hammer, there must be a down trend. In other words, you will be trying to pick off the bottom of the down move.
3) Depending on the size of the hammer, the initial stop can be large if placed at the low of the hammer.
4) Entries are also important - once we see hammer, do we enter at the market the next day? Somewhere in the body of the hammer? Or only after price clears the high of the hammer? See
this thread for more info.
5) And obviously how we exit is important as well. There's plenty of charts where in hindsight the hammer did pick off that bottom, but it may have taken days/weeks/months for it REALLY to deliver. I'm talking about significant move from the entry. Of course, any type of trail or whatever would be taken out more often than not.