Final Results : Hammer Pattern

FINAL RESULTS - HOW TO TRADE THE HAMMER PATTERN

After examining thousands of hammer patterns in different market conditions and using various filters, the test results presented here indicate that the results of the hammer pattern may be improved by: requiring the upper shadow be at least 5% of the day’s range, trading stocks priced under $30, trading stocks with average daily volume under one million shares, trading when volume is 160% or more of the previous day’s volume, trading hammers whose range is the largest range of the last 5 days.

The test results also indicate that results may be diminished using the hammer pattern in the following conditions: when the NASDAQ is downtrending or bearish, when hammers have an upper shadow less than 4% of the day’s range, trading stocks with prices above $50, trading when volume is less than the previous day’s volume.

The improved hammer pattern requirements are:

• The stock must be in a downtrend.
• The NASDAQ must be in an uptrend or wide trading range.
• The upper shadow must be greater than 4% and less than 20% of the day’s range.
• The lower shadow must be greater than twice the body length.
• The body may be either white or black.
• The volume must be more then 160% of the 21 day average.
• The range of the hammer must be the largest range in the last five days.