Failing to give a good buy signal

Look again closely at Figure 7-8. There was a failed harami cross a few days before the successful one. I noticed this pattern, and it cost me a little before I profited from the one that worked so well. Figure 7-9 adds a highlight where the failed signal occurred.

For this failed signal, I placed my sell stop on the low of the doji day. I know that contradicts what I said in the regular bullish harami section earlier in this chapter, but since the open and close of the signal day on a bullish harami cross are in such a small range, I generally use the close of the previous day as a stop.

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.=0.8158 0.0005 0.06% B=0.8158 A=0.8160 0=0.8154 Hi=0.8183 Lo=0.8153 C=0.8158 V=414

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harami 7 cross on an harami 7 cross on an futures chart.

futures chart.

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May illi

29 Jun 5

Sometimes using stops that don't allow for some market fluctuation gets you out of a successful trade too quickly. On the other hand, placing a stop with too much wiggle room can get you out of a bad trade long after it would've been prudent. Placing stops is as much an art as a science; it's one of the more difficult parts of trading. See Chapter 5 for a quick refresher on stops.

Bullish inverted hammer

The bullish inverted hammer is a fairly rare pattern. This pattern occurs in a downtrend, and the first day (setup day) is a bearish candle — usually a long bearish candle. The second, or signal, day is actually the inverted hammer; this is the rare part because the price action that creates an inverted hammer is fairly rare.

In order to get the inverted hammer as the signal day, you should start with gap down and end with a close near the opening gap price. Usually with much volatility associated with a gap opening, it would be rare to have the open and close in the same price proximity.

In this section, I demonstrate what the two days that create the bullish inverted hammer look like.

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