Friday, December 08, 2006

What a Head Fake Day!

Don't get screwed by going short, this market is strong, and I'm glad to be a part of clear reversal patterns. For some reason I'm always drawn to trading the same stock, Apple Computer. Yay! Here's my only trade for the day.

1.) The first chart is on a 15 minute time frame, the hammer reversal is not as clear as it was on the 10 minute time frame in which I was watching for the trade.

2.)The Hammer is a bullish reversal pattern that forms after a decline. In addition to a potential trend reversal, hammers can mark bottoms or support levels. After a decline, hammers signal a bullish revival. The low of the long lower shadow implies that sellers drove prices lower during the session. However, the strong finish indicates that buyers regained their footing to end the session on a strong note.

3.) The second chart clearly indicates the specificity of the hammer reversal. Take a glance..

I've had a lot of commentary by fellow traders and viewers of this blog. I'm going to expand on the issue of me calling the candle a wrong name. What we have is mearly a Long-legged Doji candlestick that has two very long shadows. Long-legged Doji's are often signs of market tops. If the open and the close are in the center of the session's trading range, the signal is referred to as a Rickshaw Man. . The Japanese believe these signals to mean that the trend has "lost it's sense of direction."

*On a side note, as stated by Jamie, over at Wall St. Warrior, there was support back from the GAP on November 21st, 2006. I was aware of this support, and was looking for the reversal after it had some selling pressure. That candle signaled to me that I should be looking to get long after it did not break support. I chose this candle to get long and named it wrong. You guys rock, thanks for your Insight! -Cal

*The Fourth candle stick prints the Hammer Reversal, and you even had the chance to get long on the 5th Bar for the trade. Risk was $0.15 cents, and the trade netted 1.85 points. (12R)

Sorry for being so short with this post. I'll be looking for more great ideas this weekend, and I'll post some great blog articles I've come across.

Stay Tuned!


Anonymous said...

Why does that 15 minute hammer scream 'pick-me-up'?... I don't see why it is necessarily bullish. Can anyone tell me?


dan said...

the hammer on the 15 min looks better than the 10 min, imho.

i dunno about screaming pick me, pick me, but a good trade none the less.

'atta boy Cal, keep ripping it up.


p.s. you owe 3 kegs tonight, having a banger!

Anonymous said...

Thanks for the expanded explanation! Very helpful. That seems a daring trade (with all that volume and rapid movement at the market open)... Nice eye!

I am wondering if a 15 minute hammer is a stronger indicator than say, a 5 minute hammer. Will be watching your AAPL posts with interest in the hope of learning more.

Good luck.

J said...

None of those candles you identified are "Hammers". A simple Rickshaw Harami at best, which shows indecision.

At least the trade worked for you. :-)

John W said...

No quibbles on terminology - you made the trade and it was a good one.

Follow this narrative on the 10min chart that is shown:

What we have is a classic zig/zag pattern - a declining stock, a gap up, fall back to 8 EMA (not shown but it did you can look it up) then a moment of indecision (red spinner), then a reversal and take the trade on the break of the 10 A.M. candle. (If you draw a line on the chart following the up and down candles you will see a "zig/zag" pattern).

You will see this pattern many times every day. You can even reverse it for a short. It can yield a home run (couple of bucks) or a short term scalp (10-20 cents). And it can be used in any time frame from seconds to months. It is my second favorite trading set-up (after the counter gap from a blow-off bottom).

Well done - also a nice BLOG keep it up.

Jamie said...

Hey Cal,

Not sure what platform you are using for the 15 minute timeframe of AAPL. But neither my esignal or shows a hammer for the third stick on the 15 minute view. Nothing more than a NR body with long upper and lower shadows. You might want to look into that because accurate charts are a must.

IMHO, AAPL reversed on gap support dating back to Nov. 21st.

Nice Work Cal!