This is the description as per the Lit Wick website:
How to Identify it:
Small real body at the upper end of the trading range
Lower shadow at least twice as long as the real body
No (or almost no) upper shadow
What it Means:
“There is a sharp sell off after the market opens during a downtrend. However, by the end of the trading day, the market closes at or near its high for the day. This signifies a weakening of the previous bearish sentiment, especially if the real body is white (the close is higher than the open price). Since the certainty for a Hammer indicator is low, the trend reversal can be confirmed by a higher open and an even higher close on the next trading day. If the open and the close are identical, the indicator is considered a Dragonfly Doji. The Dragonfly Doji has a higher reliability associated with it than a Hammer. “
We tested this pattern on every one of the S&P 500 stocks since 1990 and compared the performance results to the average 5 day move in all the S&P 500 stocks. The entry was at the open on the day after the Hammer/ Dragonfly doji bullish pattern setup and the exit was at the open 5 trading days after entry.
This is what the Hammer/ Dragonfly doji bullish setup looks like.
The Lit wick description doesn’t mention if the hammer needs to be a white or black body, so we tested both scenarios as well as the Dragonfly Doji day which according to the website is the more reliable pattern.Below are the results of the Hammer white bar, Hammer black bar, Dragonfly doji bullish, and as a comparison the average 5 day holding period of all the S&P 500 stocks and all the other candlestick patterns that we have tested to date.
The average 5 day return after all 3 variations of this pattern ( White hammer, Black hammer & Dragonfly doji) was equivalent to or less than all other 5 day periods. The Dragonfly doji which was supposed to perform the best actually performed the worst.Let Ripe Trade back test your trading concepts , Click Here
0 comments:
Post a Comment