Inverted Hammer

[TinGull 10]

Nice inverted hammer on the YM 15min this morning. Speaking of using them in context, this context was perfect and I also took this short. Knowing that the YM has a real tendency to fail a 30 minute range breakout, seeing a short signal on a candlestick at the top of a 30 min range is golden.

 

Here's the chart of an inverted hammer.

[brownsfan019 17]

Nice chart tin!

 

It's technically a shooting star in case we have any noob's wondering what that was. Point is that you recognized a really nice opportunity to short.

[traderlu 10]

Nice, Tin. Question for ya: What role did volume play in your analysis of this particular bar? That is, would it have carried the same weight in your decision to short, had it been a low(er)-volume bar?

 

I've been following your candlestick/volume analysis threads and trades, and it is great stuff! Very interesting. Keep up the good work,

 

-Luis

[walterw 10]

Nice chart tin!

 

It's technically a shooting star in case we have any noob's wondering what that was. Point is that you recognized a really nice opportunity to short.

 

Shooting stars and hammers on key areas... its just about one of the best and easiest setups to trade, add some volume analisis and vuala ¡¡

 

Thanks Brown and Tin for your inputs lately... cheers Walter.

[TinGull 10]

Luis,

 

If volume had been lower I probably still would have taken the trade because it's my highest probability setups I've got. What I would've been more likely to do is take a smaller profit on it since the volume wouldn't have been confirming the break BACK into the range.

[TinGull 10]

brown, is it still technically a shooting star even when there's no gap between the candles? Or would that be some island reversal type thing if the gap was there? Im not as well versed on all the names as I probably could be I guess.

[Reaver 10]

Thanks, that helps me out alot. I have looked into candles and see the basics of them, but wanted more detail (from a trader's perspective, not a theorist)....which you and Brownsfan are providing a ton of! I appreciate the info ya'll.

[brownsfan019 17]

brown, is it still technically a shooting star even when there's no gap between the candles? Or would that be some island reversal type thing if the gap was there? Im not as well versed on all the names as I probably could be I guess.

 

I believe your chart is showing a shooting star in book terms. But, I personally prefer inverted hammer b/c that's what I see - an upside down hammer.

 

The important part is understanding why that is bearish, which you obviously get. Nate and others reading this need to understand WHY that candle is bearish and not be overly concerned about what to call it. Call it 'Tin's Bearish Candle' for all I care!

[TinGull 10]

YES! Call it Tins Bearish Candle Maybe they'll make a monument of sorts...out of brass, or maybe marble.

 

All joking aside, as bf said its all about understanding the candle itself, not knowing the name.

[traderlu 10]

Thanks, Tin, for the clarification. Very straightforward approach, I like it!

[Reaver 10]

YES! Call it Tins Bearish Candle Maybe they'll make a monument of sorts...out of brass, or maybe marble.

 

All joking aside, as bf said its all about understanding the candle itself, not knowing the name.

 

lol works for me bro. You should set up a donation link like the indicator programmers do so we can hook you up.

[Anonymous 11]

Nice chart tin!

 

It's technically a shooting star in case we have any noob's wondering what that was.

 

To play devil's advocate, one could argue that it is a Doji. The relationship (width) of the open and close versus the actual range of candle fits. There is a valid low close Doji pattern. This is a very good pattern and not what one finds in the books. Most patterns,found in books, do not work that well................I am waiting for Mark to put in his two cents here.

 

Point is that you recognized a really nice opportunity to short.

 

Understanding the PRICE ACTION that creates the candle line or pattern is more important than what one chooses to call the candle.

[Anna-Maria 10]

 

Understanding the PRICE ACTION that creates the candle line or pattern is more important than what one chooses to call the candle.

 

Yes, that's a very pertinent comment, well said that man!

 

It's also a favorite set-up of mine when observing candle charts.

 

Although we tend to trade currencies almost exclusively, & their candle pattern behavior can be slightly erratic, they're still very consistant at certain junctures on the map. Especially on the 60min+ frames.

 

Looking forward (time permitting) to following this little corner of the forum. A nice addition to the site!

[Anna-Maria 10]

They can be a real benefit clipping in off the larger timeframe references.

 

Even better when the Fundamental chatter & scaremongering is beginning to unsettle the specs & weak holders.

 

Yen displayed such behaviour during late June/early July. The set-up doesn't appear as often as we'd like on the real big frames, but when it does (at sentiment extremes) it's well worth cranking the radar up & preparing the supply-demand hotspots on the lower timeframes.

 

Anyhow, thought I'd just sling these up for reference. 1st example is the Daily highlighting the candle, followed by the 60m behaviour off the lower top.

[Nick1984 10]

In my trading routing I use a 5 min candle as my "long term" trend chart and these types of candles don't seem to happen very often on the 30 min break outs plays. Have you noticed whether these set ups occur on even longer time frame like your 15 min compared to a 5 min or 233t time frame?

[notouch 10]

Candlestick patterns on the daily charts are usually good for a swing trade. I think generally the longer the time frame the more reliable the candlestick. You have to research which candlesticks give the best signal in your chosen market. In forex, for example, the 4 hour candlesticks give great singals but I haven't found any use for them in stock index futures.

[TinGull 10]

the 5min has given some great opportunities as far as the 30min range breakout failure that I play all the time. I'd say about 60% of the time I see that sort of candle. And I agree with notouch that the longer the time frame candle the more "reliable" it seems to be, but that being said there's lots of people that utilize candles on a 3min or lower time frame. I personally do not use candles on anything less than 5min. I still have a candle chart for my 1min chart, but I don't really watch the price action when I'm scalping, I tend to just watch volume and trade that.

[brownsfan019 17]

Pivot - what you are discussing is specific to Mark's using of candles and unless he is willing to post every detail on how they are used, I'm having trouble understanding how any reference to that is useful. As we both know, Mark uses candlesticks in his own fashion and it obviously works for him; however w/o specific resources made available to the readers here, esp newbies to candlestick analysis, no one can follow your post.

[james_gsx 16]

This is probably going to be a dumb post, but I am new to candlestick analysis so bear with me.

 

Basically in this "tin's bearish candle" price action first went up, then there was an absence of buyers and the sellers were able to take over and push price lower. Hence why you'd go short the next candle, because obviously buyers were non-existent and sellers were plentiful?

 

Now if it was a doji, how would you interpret it on this chart?

[TinGull 10]

Depends on the volume of the doji. If the volume was either excessively low or excessively high, then I'd interpret the same way. If the volume was pretty much inline with the rest of the action, then I'd be more wanting to wait for confirmation of a down move rather than acting immediately, as it *could* potentially be just a continuation doji.

[brownsfan019 17]

James - excellent question on use of doji's. I think that's a great question and I will start a thread dedicated to it.

[wrbtrader 10]

Pivot - what you are discussing is specific to Mark's using of candles and unless he is willing to post every detail on how they are used, I'm having trouble understanding how any reference to that is useful. As we both know, Mark uses candlesticks in his own fashion and it obviously works for him; however w/o specific resources made available to the readers here, esp newbies to candlestick analysis, no one can follow your post.

 

Hi brownsfan,

 

Pivot has made no reference in this thread to how I use Inverted Hammers or Shooting Star candlestick patterns even though he did say he was curious (waiting) for my input after he made the Doji commentary.

 

With that said, I do not consider what Tin showed on his YM 15min chart a doji candlestick pattern.

 

Also, Inverted Hammers and Shooting Stars are commonly mixed up.

 

Yet, as long as we understand the price action that generated that trade signal...it really doesn't matter which one is which unless we are talking definitions only and not trade signal stuff.

 

Further, I want to explain my own use of that phrase...

 

understanding the price action.

 

It's simple, do not use Japanese Candlesticks to define/explain the price action.

 

Instead, you should understand the price action prior to the appearance of any pattern signal regardless if we are using Japanese Candlesticks or some other trading methodology.

 

This is probably going to be a dumb post, but I am new to candlestick analysis so bear with me.

 

Basically in this "tin's bearish candle" price action first went up, then there was an absence of buyers and the sellers were able to take over and push price lower. Hence why you'd go short the next candle, because obviously buyers were non-existent and sellers were plentiful?

 

Now if it was a doji, how would you interpret it on this chart?

 

Hi james,

 

Lets assume that was a doji or your own personal interpretation has it as a doji regardless if others agree or not.

 

Without getting into all the extensive backtesting I've personally done on +10 years of intraday data on many different types of futures trading instruments...

 

Doji's require confirmation from the price action that follows within the next several intervals.

 

Thus, in TinGull's chart...changing the Inverted Hammer to a Doji...best to wait for confirmation that either sellers has control or that buyers are unwilling to push prices higher (there's a difference).

 

However, waiting for the confirmation is the real problem with trading with Inverted Hammers, Shooting Stars or Doji patterns.

 

Sometimes that confirmation produces price action that doesn't allow for a good reward due to what you know about the price action the pattern formed within.

 

In contrast, the price action (your understanding of it prior to the appearance of the candlestick pattern) reveals there's a good reward.

 

Just as important or more important, this allows you to better manage your trade via candlesticks accordingly to the price action involved because a pattern signal at 10am is much different than the same pattern signal at 2pm (different risk:reward scenarios sort'uv speak).

 

My point is this, sometimes you have a valid Doji pattern with confirmation but not a valid trade because the reward potential is not good enough for whatever goals you have via what you know (understand) about the price action.

 

I'm not trying to make this seem complex.

 

I'm trying to tell you why most traders struggle with finding consistent profits via Japanese Candlestick patterns because there is a lack of understanding of the price action these patterns appear within.

 

Regardless, in the beginning, keep it simple as much as possible while you gain the experience (it will take several years) to move into the complex stuff involving proper trade management of Inverted Hammers, Shooting Stars or Doji patterns because they are some of the most difficult patterns to trade profitably on a consistent basis.

 

Sorry about the rant and getting back to James question...

 

I use multiple time frames side by side and my chart of YM lower intervals (2min, 3min and 5min) reveals shrinking volatility followed by a volatility spike that lead into the price area of the Doji (pretending it was a Doji).

 

That volatility spike is followed by the Doji and that's indecision all by itself.

 

Indecision in that will the increased in volatility lead into rising volatility for the next several intervals with prices going up instead of down?

 

Simply, to remove the question mark you should wait for confirmation via the 15min chart or get clues about that Doji via the lower chart intervals to tell you if its ok to Short or go Long in that Doji.

 

My point is this...whenever you have a question mark about the price action of a candlestick pattern...drop to a lower chart interval to see if the question mark goes away (you have answers).

 

Therefore, my lower chart intervals suggest it would have been ok to Short that Doji whereas the 15min chart interval all by itself would have me waiting for confirmation in the next interval that appeared after the Doji (pretending it was a Doji).

 

______________________

 

Finally, I want to mention a well known problem with YM that's rarely discussed.

 

YM is on the CBOT. Whereas the EMD, ER2, ES and NQ are on the CME.

 

The CBOT has a different start time for YM than the other Eminis on the CME.

 

The top tier (the best stuff out there) data vendors recognize this and leave it as is.

 

However, many of the lower tier data vendors like eSignal et cetera have changed or altered the start time of YM on their charts to correlate with the start time of the other Eminis on the CME.

 

This causes particular intervals (like the 15min chart interval) for YM to be different from other data vendors that do not alter their CBOT start times.

 

Simply, the candlestick pattern will be different when comparing lower tier data vendors with top tier data vendors.

 

This is problematic for any trader that puts more emphasis on the candlestick pattern instead of understanding the price action because what they see may not be the true image.

 

Thus, if your YM 15min chart intervals goes like 0930am, 0945am, 1000am, 1015am and so on...

 

You're using one of those lower tier data vendors that has altered the CBOT start time.

 

This may not be a big deal to most but if you truly want to see the same image that the big boys are seeing (ex. institutional traders)...

 

Your data should be showing 0820am, 0835am, 0850am, 0905am, 0920am, 0935am, 0950am and so on.

 

I myself, it is a big deal after spending many trading days visiting the offices of close personal friends that are institutional traders and other traders working for firms (no prop stuff) in the trading business. ...

 

Simply, I want to see exactly what they are seeing especially when I'm doing Japanese Candlestick analysis even though I have a good understanding of the price action.

 

Yep, my chart on YM 15min does not show a Shooting Star, Inverted Hammer nor a Doji but the price action is the same (Bearish).

[brownsfan019 17]

Hi brownsfan,

 

Pivot has made no reference in this thread to how I use Inverted Hammers or Shooting Star candlestick patterns even though he did say he was curious (waiting) for my input after he made the Doji commentary.

 

Mark,

Thanks for sharing. The post I was referring to has since been deleted by Pivot or a mod. The post I was referencing was VERY specific on how you use candles and I simply said we need to expound further on this or it's of little use since very few here, outside of Pivot and you, understand the analysis.

[wrbtrader 10]

Mark,

Thanks for sharing. The post I was referring to has since been deleted by Pivot or a mod. The post I was referencing was VERY specific on how you use candles and I simply said we need to expound further on this or it's of little use since very few here, outside of Pivot and you, understand the analysis.

 

Hi brownsfan,

 

Thanks for the clarification because I didn't know there was another post by pivot that was removed prior to my arrival to this thread.

[habi 10]

Finally, I want to mention a well known problem with YM that's rarely discussed.

 

YM is on the CBOT. Whereas the EMD, ER2, ES and NQ are on the CME.

 

The CBOT has a different start time for YM than the other Eminis on the CME.

 

The top tier (the best stuff out there) data vendors recognize this and leave it as is.

 

However, many of the lower tier data vendors like eSignal et cetera have changed or altered the start time of YM on their charts to correlate with the start time of the other Eminis on the CME.

 

This causes particular intervals (like the 15min chart interval) for YM to be different from other data vendors that do not alter their CBOT start times.

 

Simply, the candlestick pattern will be different when comparing lower tier data vendors with top tier data vendors.

 

This is problematic for any trader that puts more emphasis on the candlestick pattern instead of understanding the price action because what they see may not be the true image.

 

Thus, if your YM 15min chart intervals goes like 0930am, 0945am, 1000am, 1015am and so on...

 

You're using one of those lower tier data vendors that has altered the CBOT start time.

 

This may not be a big deal to most but if you truly want to see the same image that the big boys are seeing (ex. institutional traders)...

 

Your data should be showing 0820am, 0835am, 0850am, 0905am, 0920am, 0935am, 0950am and so on.

 

NihabaAshi,

 

I have some problems to understand your last annotation about the YM start time. On the CBOT site I see the trading hours for the YM last from 6:15 pm to 4:00 pm. I cannot find anything, who changes at 8:20 am. So, please give me some hints, why the start time should be at 8:20 am

 

With eSiganl, I have the possibility to create another time frame with your recommended start time. (Look annotated chart)

 

Thanks for your explications