If you like to play bottoming tails or hammers, here is a good way on how to scan stocks that are making these candlestick patterns. In this article, we will explore the different ways and places to look for stocks that area making these patterns.
The bottoming tail or also known as the hammer is a powerful bullish reversal pattern that often appears at the end of a correction of downtrend. That is why many many traders like to scan for them. They offer traders a great way to play the stock market. Some trades can offer very good risk reward ratio as well.
In order to fully understand why we need to scan for stocks making the bottoming tail or hammer, you need to know the power of this candlestick pattern. I invite you to take a read of the article I have written about The Super Bottoming Tail.
Basically the bottoming tail, the super bottoming tail and the hammers are just variations of a candlestick pattern that has a small body with long tail. You have to imagine what happened during the trading day. The stock collapses dramatically only to close higher far away from the lows.
This is a picture of bullishness because the bears were not able to be in full control.
The chart above is the daily chart of ADBE.
You will notice that I have circled two candlesticks. The first one is a bottoming tail and the second one is a variation of the hammer pattern. They both have longer tails compared to other candlesticks in the stock chart. Notice that the stock went higher after the appearance of these two candlesticks.
That is the power of the bottoming tail and the hammer and that is the reason why traders would want to scan for stocks making these candlestick patterns.
If you are interested in using the daily bottoming tail as a trading strategy, check this trading strategy that I have written. The Daily BT Swing Trading Strategy (An Excellent Swing Trading Strategy)
Bottoming tails not only appear in daily charts, they often appear in other time frames as well. It doesn't matter if it is a weekly chart, daily chart, hourly chart or even intraday charts like the 15 min or 5 min. Bottoming tails and hammers appear everywhere and traders can take advantage of them and learn to trade them.
The chart above is the 60 min chart of the S&P 500 futures. Notice how the index had a correction which ended with the bottoming tail. The tail is so long compared to other bottoming tails and I have named these kind of candlesticks a "super bottoming tail". A distinction from the normal ones that you see.
In this article I will teach you 3 ways to scan for bottoming tails or hammers. Here they are:
You may wonder why I include the manual way.
Why would somebody want to scan for them manually when the world is full of technology that can help us scan for any stocks making certain candlestick patterns. I try not to be sarcastic here, but I think sometimes some of the best trades that you can make are when you scan through stocks manually.
There is only so much that technology can do and even if you use a scanner, you will still need to use human judgments to enter the trade.
Let's have a look at each one in more detail.
If you are a trader who specializes in only a few indexes or a basket of stocks, then this is the best way for you to scan for bottoming tails and hammers.
Some traders only trade the S&P 500 index. Others only trade the 3 major indexes. And some traders only trade the Nasdaq 100 stocks and some traders only trade a small handful of stocks that are their favorites. The world is just a big place where different people can make money by trading very differently.
Of course there are traders who only specializes in bottoming tails and hammers. They just look for these candlestick patterns in a small basket of stocks and trade them everyday.
Let's say you only trade the Nasdaq 100 stocks.
The holding period for a daily bottoming tail or hammer may be 1-10 days. The holding period for a 60 min bottoming tail may be an hour to a maximum of 3 days. The holding period for a 15 min bottoming tail may be anywhere from 15 min to an hour. The holding period for a 5 min bottoming tail may be 5 min to 30 min.
If you specialize, this is the BEST option for you.
No need for scanners. Its just a waste of resources when you have a limited number of stocks to look at. Just do it manually. Once you have done it repeatedly, your eyes will pick up details better than any scanner will do.
Finviz.com is one of those very popular financial sites that allows you to scan for stocks by Description, Fundamentals and Technicals. Best of all it is free. You can easily see the stock that you have scanned because they put the charts of these stocks in one page.
Read a more in depth review on Finviz's Stock Screener. The Finviz Stock Screener - An Awesome Website To Find Stocks.
Here are the steps to scan for stocks that have formed a bottoming tail or hammer:
Once you have click on these buttons, a whole page with stocks that have formed these patterns will appear. You can see 10 stocks in one page. The stock charts will be on the left while the description and more detailed info will be available on the right.
The scan will come up with all kind of stocks making these candlestick patterns. Some may lack liquidity and some may be too cheap or too expensive. Lack of liquidity will usually have big spreads between the bid and ask. If its too expensive, it may not be worth it cause you will be using too much money in your account to buy the stock.To have a more detailed filter, you need go to the Description tab and input the filters you want.
Perhaps you can choose stocks with more than 500,000 volume, priced between 10 to 100.
That will give you better trading candidates.
Stockcharts.com is another very popular trading website that offer superb stock charts for free. I highly recommend that you use it to do your analysis. They have tons of information that a trader can use to scan for stocks and do technical analysis.
They do have a candlestick scanner but its a bit hard to find as it is hidden deep inside the website. You have to:
Its a bit tricky and their website layout may change. Here is the direct page for the Candlestick Scans along with other scans. Stockcharts.com Predefined Scans.
You will have to scroll way down to see the Candlestick Scans.
This is what you will see. I don't know why they don't organize all the stocks making the hammer pattern into a single place but they have listed the stocks by indexes.
When you click on one of the links of the "hammer" pattern, it will bring up a list of stocks that have formed an end of day "hammer" pattern on the daily charts. I must say they are not as user friendly as Finviz.com because they do not display the charts in one place.
But what you can do is click on the "charts" icon and it will bring up a stock chart of the stock. Let's click on CF Industries and you will get a stock chart like below.
Chart Courtesy Of Stockcharts.com
A daily chart of CF Industries appeared after I click on the charts link and I have screenshot it above. Look at the hammer pattern that appeared at the powerful 50 MA. For those who like to trade hammers, they can consider to play this stock.
I have to say that it is a bit tiresome to click on each individual stock to bring up the chart. Still if you are a trader who only plays bottoming tails, then this is still a time saving option for you.
The 2 websites that I have shown you to scan for bottoming tails and hammers are good enough if you trade the daily charts. For hourly hammers or 15 min hammers or just about any intraday candlestick patterns, you will need a more powerful intraday scanner and usually you will have to pay for it. Anyway, if you only trade the daily candlestick patterns, these resources are more than enough for you to find trading candidates.
Charts with the Freestockcharts.com label are courtesy of Freestockcharts.com
Charts with the investing.com logo are courtesy of Investing.com powered by Trading View
Jan 08, 19 05:35 AM
Is the market ready for a fresh new start for 2019 and will this be a recovery and start of a new rally. Let's take a look at the charts.
Dec 03, 18 08:16 AM
With an agreement to pause the trade war, Dow is about to jump 450 points higher, but will this rally sustain and go even higher? Lets take a look at the charts.
Nov 29, 18 07:51 AM
Yesterday we saw a huge big rally 600 ++ points. The question now is this rally sustainable and will we have a beautiful Christmas in the stock market this year. Here are a few things to look out for…
Nov 29, 18 07:35 AM
This sideways movement in the KLCI is really giving investors and traders a headache. What we are experiencing now is a volatility contraction which is often followed by volatility expansion.
Nov 26, 18 08:52 AM
As the techs reach an area of long term support, its going to be a choppy ride as the market decides whether support will hold or the downtrend continues...