Trading a Hammer Candlestick Pattern

  • 29 Nov 2016
  • By Trading Central
  • Topics: Energy

The Hammer candlestick is created when:

  • the open, high, and close are nearly the same price.
  • there is a long lower shadow that is usually at least twice the length of the real body.

The closer the closing price is to the high and the longer the lower shadow, the stronger the hammer.
Following the hammer trading day, a white bullish candlestick will confirm the short squeeze.

ADAPTED OPTION STRATEGY: BULL PUT SPREAD

As the upside potential is unlimited, selling premium can be an excellent strategy to create income during volatile market periods. As long as Oil stays above $39.14 (stop- loss) until expiration, this strategy will keep the credit received when the bull put spread position was opened. Pairing the short put with a long put at a lower strike price helps reduce the margin required for a naked put option position and defines the total risk of the strategy. The option strategy is entered for a net credit.

BULL PUT SPREAD: Leg 1  
Trading Symbol LO U6
Option Type PUT
Option Strategy Sell
Strike 39
Expiration AUG 2016
BULL PUT SPREAD: Leg 2  
Trading Symbol LO U6
Option Type PUT
Option Strategy Buy
Strike 35
Expiration AUG 2016
ADAPTIVE FUTURES STRATEGY  
Trading Symbol CL U6
Strategy LONG
Entry Point 44.69
Target 52
Stop Loss 39.14
Contract Expiry AUG 2016

POTENTIAL GAIN PER CONTRACT

The maximum gain is unlimited for the futures position and limited for the bull put spread to the total credit received on writing the spread.

HAMMER CANDLESTICK PATTERN: CL U6 AUGUST 5TH

ACTUAL OUTCOME

POTENTIAL DOWNSIDE PER CONTRACT

If the price closes below 39.14, the futures position will be closed at a limited loss thanks to the stop-loss. The bull put spread is a limited loss strategy as max loss is reached once prices fall to 35.

Consolidation patterns happening now in the markets.

Mexican Peso: 6M

Gold: GC


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