Hammer or Hanging Man?

[james_gsx 16]

Alright this setup has always gotten me a little confused, the candle makes the shape of a hammer directly after - lets call it a spinning bottom. The direction of the market for the week has been down except for yesterday where we saw some volatility. Today it looks like we might end up with a hammer candle.

 

Would you play this as a hammer since it's at the bottom of the short term trend? Or a hanging man because the previous price action was up?

[brownsfan019 17]

James,

There is very, very little data here to make a suggestion. Candlestick analysis is not just about what I call 'hammer hunting'. If I ever write a book, that will be in the book for sure. Maybe even the title of the book - Dangers of Hammer Hunting. I can see it now.

 

What I am trying to say is that all I see here is a hammer that closed below one moving average and above another. Is that playable? Maybe.

 

I need more of the chart and you need to explain what your trading plan is. Does this hammer fit your profile of a legit hammer? I'd be concerned about closing below the one MA, but that also looks like a very quick MA as well.

[james_gsx 16]

Here are two charts, one with no annotations and one with simple support and resistance lines. The red line is the 8 EMA which is usually too fast for my taste in the index markets (I use it for other markets). I typically pay more attention the blue line, which is the 21 EMA. You can see how it's providing support for the last 3 candles then todays "hammer". I drew in the line that would show the current support used to be resistance, which is also something to take note of.

 

As far as my trading plan goes, I would be more willing to buy a hammer at support especially if there is more than one area to support (the line I drew and the 21 EMA)

[MC 10]

I think volume on a hammer would be important to know as well no?

[brownsfan019 17]

 

 

My concern with this chart is the immediate overhead resistance.

 

Weak risk/reward in my opinion.

 

So it could be a valid hammer, but I would be cautious with those resistance levels right above you. Either take the trade and be very cautious with these levels or consider passing on this one for now.

[brownsfan019 17]

I think volume on a hammer would be important to know as well no?

 

If it's in your biz plan mc, then yes. If not, then no.