You are able to sit at your computer all day and monitor all of your open trades.
What is Hammer Time ?
Consider a stock that has a sharp intraday downward move that is followed by an equally sharp intraday recovery. The resulting candle pattern resembles a hammer.
Hammer Time is a method of setting a profit taker stop that allows you to close a short trade near the bottom of the hammer handle before the stock price recovers intraday.
It is a method that does not rely on trailing stops. It could be argued that trailing stops will achieve the same results as the method described below. However, my experience is that if you set your trailing stop tight enough to attempt to close near the bottom of a hammer handle, then your trailing stop will be hit much earlier via intraday ups and downs.
It is a new to me method that I developed following missing out on potential profits during intraday moves. Those whom are more experienced and/or more widely read on trading techniques than myself may already be aware of similar techniques.
The technique is developed within the constraints of the contingent order possibilities available via webIress. Note that the webIress contingent order options are quite good, but not as flexible as those found on some Forex trading platforms for example.
I haven’t taken the time, as I have not had the time, to research stop strategies similar to the strategy described below. However, previously I have noted that there is lots of information regarding longer term entry and exit strategies, but not much available about short term strategies like this one.
In order to explain the Hammer Time idea, first consider the recent WOW chart shown below.
The Hammer Time Strategy …
Open a 1000 shares WOW short trade on 26-Feb at the open price of 3677. Note that the ‘normal’ stops strategy is shown below under Section 1 for comparison, but the Hammer Time strategy starts with Section 2 below.
Normally set upper stop to 3715 for the full 1000 shares.
Normally set lower stop to the initial target of 3370 for the full 1000 shares.
Above stops are OCO (one cancels the other).
Look for a large one day move in the recent past. In this case the 3.1% gain from the close on 5-Feb to the close on 6-Feb is chosen.
After the close at 3642 on 27-Feb, now set up the Hammer Target for the next day.
First retain the upper stop of 3715 for the full 1000 shares. Note that if the hammer target is hit, you will need to delete the upper stop at 3715 manually.
Hammer Target on 28-Feb = 3642 less 3.1% = 0.969 x 3642 = 3529.
Set an in-market buy for 100 WOW shares at the Hammer Target of 3529. Note that this is not a contingent order, but an in the market in the queue order.
Attach an If Done order to the buy 100 WOW shares order, and associate the following orders with the If Done order.
Set an order to buy 900 WOW shares at a level marginally above 3529, say set at 3539.
Seta an order to buy at the initial target of 3370 for 900 shares.
Above stops are again OCO.
Once the buy at 3529 is done, manually delete the buy at 3715 order.
Note:
A variation to Step 7 in the above strategy is to attach an If Done order to the buy 100 WOW shares order, and associate the following orders with the If Done order.
Set a trailing stop order to buy 900 WOW shares with a trailing gap of 10 cents, starting at 3539.One point to watch out for on webIress is that trailing stops can only be set to ‘End of Day’. That is, ‘Good until Cancelled’ is not an option for trailing stops. This seems a bit odd in my opinion, hence, I will ask fpmarkets about it later.
Seta an order to buy at the initial target of 3370 for 900 shares.
Above stops are again OCO.
The Hammer Time strategy is for short trades, but the same principle can be applied to long trades that could have a shooting star candle pattern.
Obviously the Hammer Time strategy will not always work. For example, the intraday low on a hammer day may not reach the Hammer Target that you have set.
