15# Hammer Trading System
Trading with Pivot Points Levels and Hammer Candlestick pattern
Submit by Buddy 26/07/2013
what is the Hammer
You may already read about hammer candlestick pattern elsewhere. However,
clear and concise methods of defining what a hammer is and how to trade
hammers are rarely mentioned.
Here is how we define a perfect hammer pattern:
a. The lower wick (the tail) is at least twice as large as the body and the upper
wick.
b. It’s located at major support.
The above photo shows a good hammer. Notice the lower tail of the candlestick
is much bigger than the body and the upper wick.
Rules for defining an inverted hammer are just the opposite:
a. The upper wick is at least twice as large as the body and the lower wick.
b. It’s located at major resistance
Below is an example of a perfect inverted hammer:
This system is used on 15-minute and 4-hour timeframe. With 15-minute
timeframe, daily pivot points are employed. Weekly pivot points are utilized when
trading off 4-hour timeframe.
This system is used on 15-minute and 4-hour timeframe. With 15-minute
timeframe, daily pivot points are employed. Weekly pivot points are utilized when
trading off 4-hour timeframe.
In this manual, I’ll present the entry signals for swing trading off 4-hour
timeframe. We use the same techniques to generate entry signals
on 15-minute timeframe but using daily pivots instead of weekly pivots.
Okay, let’s dive right in the meat of PivotCandle Trading System:
Buy Entry Signals: Three criteria must be fulfilled:
a. Price must be above 20-period Exponential Moving Average (EMA20) and
EMA20 must be above 50-period Exponential Moving Average (EMA50).
b. Price moved past a pivot level (S1/S2/S3/P/R1/R2/R3) and retraced back
on the exponentials moving averages (Time Frame 15 min 4H Time Frame retrace back also Weekly pivot points level).
c. A hammer formed.
When the hammer candlestick closed, we enter at market price with three lots.
Stop loss should be placed 10-20 pips below the Low of the hammer depending
on the volatility of the currency pairs we’re trading.
Exit Signals:
a. When price moves in our favor the same distance as our stop loss we take
one lot out. For example, if our stop loss is 50 pips away from entry price,
when we have 50 pips in profit we exit one lot.
b. For the remaining two lots, we trail our stop loss a few pips (5-10 pips)
below EMA20. We let our profits run and let the market decide when our
positions are closed.
For sell (short) entry and exit signals, the rules are obviously the opposite of
the rules for buy (long) signals.
Hammer Pattern Trading System
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