‘! 4: traderpulse #1 STRATEGY USED BY PROS Follow us O®OOO®ila: traderpulse #1 Forex Strategy used by PROS Introduction © |Z il aa (i Traders identify support and resistance by historical price action. But the market doesn’t usually bounce back from the same levels. It creates new support & resistance more often than not and industry experts identify it easily with their naked eye. This book is about one of those methods used by professionals to identify support & resistance in uncharted territories. The strategy is simple and powerful that it can be even used by a newbie without any fancy tools. You might have obviously heard about the hammer candlestick. It is usual- ly used to identify a trend reversal. But we are going to demonstrate how to use it effectively and how to find support and resistance with the help of hammer. traderp ® © © @® Teaillite traderpulse List of Contents Hammer Candlestick - 3 Important criteria for a candle to be marked as a hammer - 3 What it means toatrader - 4 Psychology behind it - 4 Relevance - 4 So,how to trade the hammers? - 4 Invincible Combo-Hammer and Bull Candle - 5 Hammer-The saviour from false breakouts - 6 Hammer not full a bull candle- our proprietary strategy - 7 Inverted Hammer - 9 Short Trades using Inverted Hammer - 9 Identifying Support and Resistance - 10 Key Takeaways - 12 Key Note(Must Read) - 12 ® © © @® tldillite traderpulse Hammer Candlestick Hammer is a reliable candlestick pattern that can be used to identify a bull- ish trend reversal. It has a long lower shadow with a short body and a much shorter upper shadow. Important criteria for a candle to be marked as a hammer & Lower shadow should be at least twice the size of the body & The occurrence should be after a significant down move which could be indicated by 2 or more bear candles or even by a single long bear candle. Little (OR) No Upper Shadow VA ~ Lower Shadow — __ atleast twice the —» size of body eo Low trade OGOOOO® Page 3allt: traderpulse What it means to a trader? The hammer pattern signifies that there is good volatility in the market,on that particular period. Despite the volatility, the price closes almost where it started. The hammer candle can be either a bull candle or a bear candle. Both signifies the same. Psychology behind it The bulls and bears fight it out. The bears are taking the price down initially. But the bulls are back with a bang & close the candlestick almost where it started. The bearish price action was almost negated & the bulls signal the market,"We are back". Conventionally it says, the prices are getting support. Relevance If the hammer is formed in an area which is an established support, it vali- dates the support and act as an additional confirmation to the traders. But if it happens just after a support is broken, it cautions the trader about a false breakout and saves from a potential bear trap. So, how to trade the hammers? The hammer candlestick indicates a bullish reversal price action. So, in order to improve the success rate, it can be used to identify the end of a throwback rally in an uptrend. A buy trade can be initiated as soon as the price action sustains above the hammer with a stoploss below the lower shadow of the hammer. ONCRONO ry)illite traderpulse This is a long lasting strategy used by the pros to identify trend-reversal and this could be attributed as the inspiration for swing trading. Invincible Combo-Hammer & Bull candle Chart 1: USD/JPY In the above chart, you can see that the price is in a bull trend and it experi- ences a selling pressure and makes a significant down move. A hammer is formed which is immediately followed by a strong bull candle. A buy trade will be initiated at the close of the bull candle and the stoploss will be placed below the tail. The trader can expect 1:1 or 1:2 risk-reward ratio. The accuracy level increases if 1:1 ratio is followed. Note: Never trade a running candle, wait for the candle to close above the hammer. This is a widely used strategy, but we have a secret ingredient where the application of a hammer can be extended. OGOOOO® Pagesillite traderpulse Hammer-The saviour from false breakouts Hammers are the best indicators to spot false breakouts. When it is formed, immediately after a support is broken, it is place for caution. Trad- ers should exercise caution and wait for additional cues from the market. If it is followed a bull candle,then it confirms a false breakout. Double Top Break-Out Zone Chart 2: USD/CAD In the above chart,the USD/CAD pair made a double top and it almost validated the pattern by breaking the support. But a hammer candle was formed,immediately after the support is broken signifying the caution zone. It implies that bulls are still defending that price zone and they are trying to make a counter attack. The long bullish candle which followed it immediately implies that bears are running for cover and the counter attack by bulls is a success. It resulted in a short bull run. (ORORORORG) Page 6illu: traderpulse Most traders will neglect the hammer if it is not followed by a bull candle. But a war is a war, just because the bears defended their fort once doesn't mean it can't be conquered ever. The bulls will continue their attack and they might succeed in the near future. Hammer not followed by a bull candle erect ee | | re ESCs een COUT mad ~— ENTRY Chart 3: EUR/USD See the above chart, a hammer has formed and the following candle is a bearish one. In the subsequent candles, though the price crossed above the hammer candle, it was not able to close above the hammer indicating, the bulls were not able to sustain the selling pressure. After some price consolidation, bulls were able to take the take the price above the hammer. OGOOOO® Page7illite traderpulse A buy trade can be initiated at the close of the bull candle above the hammer keeping a stoploss below the hammer. The bulls absorbed the subsequent selling pressure and defended the lower shadow, as indicated by the chart. It was then followed by a strong bull run too. Hammers can indicate the psychology of bulls and bears if understood properly. Here is another example for your understanding. Coe ee enay Chart 4: GBP/JPY After an uptrend, the market faces a throwback. A hammer is formed, but the following candle is not a bull candle. After some more correction, the price crosses over the hammer and the buying momentum takes up a notch. Target is taken down comfortably. (ORORORORG) Page 8illite traderpulse Inverted Hammer As the name indicates, inverted hammer is the upside down hammer. The important criteria is that the upper shadow should be at least twice the size of the body. Upper Shadow Eom comet size of body ~ a Little (OR) No Lower Shadow Short trades using Inverted Hammer The same strategy can be used to enter a short trade with an inverted hammer. To your wonder, the same chart can be used to understand how the market respects the hammer pattern. But the chart interpretation should be ina slightly different way. OGOOOO® Page 9illite traderpulse Down Move ~~ Chart 5: GBPAPY The market witnessed some bearish moves initially. Then it made a pull- back. During the pullback, a hammer is formed. After some more price action, the pair made a move below the inverted hammer. Once it crossed the inverted hammer, you can witness an avalanche of bears taking control over the counter. Identifying Support and Resistance So far we have demonstrated on using the hammer and inverted hammer candlestick pattern for making long & short trades. But the significance of hammers is much more than that. During a trend the market flows freely in one direction,either up or down. But, the tussle between bulls and bears happen only in a place of significance. The hammer pinpoints the place of significance to a chartist. ®®®O © © ®@ Page 10illu: traderpulse The upper shadow of the hammer will act as a strong resistance until breached. Once it has been breached, the lower shadow becomes a strong support. The role of support will be assigned to lower shadow only after the crossover is made. rc) ero) er) Chart 6: EUR/USD Let's revisit the EUR/USD chart once again. As you can see, there was a strong resistance at the upper shadow. The price was not able to make a crossover above the hammer. Once it made the crossover, lower shadow converted itself as a support. The lower shadow did not act as a support when you compare the preceding price action. It was made a support because of the crossover above the upper shadow. Pam tr Te(-1e 18] tc} ® ® © © (©)traderpulse An experienced trader can not only use the hammer for trade, but also identify the strength and market sentiment. So use this strategy and trade like a pro. Key Takeaways Hammer & Inverted hammer can be used to identify critical support and resistance of the market. & Donot initiate a trade in a running candle. Wait for the candle to close above the hammer or below the inverted hammer & then initiate the trade. — Stoploss is placed below the lower shadow of the hammer & above the upper shadow for the inverted hammer. & This strategy can be used for short term as well as long term. In order to yield high accuracies,use the 4-hour & above time-frames. & Always follow a proper risk-reward ratio. Key Note All the examples shown here are with 1:1 risk reward ratio. Once a trader gets experience in using this strategy,a trader can use 1:2 ratio. When this setup occurs in the beginning of a trend, trader can expect 1:2 or even 1:3 ratio. But if the asset has already made a significant trend run,then it wise to use 1:1 risk-reward ratio. ® © © @® ersallan: traderpulse We have indicated certain setups,which could be used to make a trade and make profits. But once you gain experience,this little insight about hammer, can help you understand the market better and help your trading. If you are a serious trader and in need of professional advice, kindly sub- scribe our services. We provide signals as well as analysis. The Signals App provides you accurate buy sell levels. We use several proprietary strategies to generate accurate signals. Still in hesitation? We have a FREE service (LIFETIME). You can use it and check out our accuracy, only when you are completely satisfied, you can move on to premium service. DOWNLOAD SIGNALS APP NOW The Analysis App provides you detailed analysis of the chart without TP and SL. The analysis app is an one of a kind app in the market. Experts share their complete chart analysis and it can be used to learn and enhance your technical skills. You might be wondering whether there will be a free trial. Actually, we have a better offer. We have a FREE service(LIFETIME) where you can check our expertise and then move on to premium service where the accuracy will be even more better. DOWNLOAD ANALYSIS APP NOW Thanks for being a part of our trading community. You can reach us at support@traderpulse.com for clarifications. We are happy to help you 24x7. ® © © © @ TTR)