The article discusses the figures of graphical analysis "Hanged man" and the reverse to it – "Inverted hammer". What are these patterns? How often do they occur? How effective is trading on them? In this study you will find answers to these and other questions.
In the proposed study, we will research the Harami graphical pattern. In his book "Japanese Candlestick Charting Techniques", Steve Nison characterizes this pattern as follows:
"The Harami model is a candle with a small body that is within a relatively big body of the preceding candle. 'Harami' is an ancient Japanese word which means 'pregnant'. A big candle is a 'mother', and a small one is a 'child' or 'fetus.' " This pattern is believed to be reversal. We will check if it is true by using a large volume of historical data.
The article will focus on the formation well-known among traders – the 1-2-3 pattern.
Its description as “reversal points” can be found in the book “Long Term Secrets of Short-Term Trading” by Larry Williams.
It is believed that the formation of this pattern predicts a market reversal.
Trading on the basis of 1-2-3 pattern can be carried out on any timeframe and on the charts of any financial instrument. The structure of the model is not complicated, that’s why it’s popular among traders.
Let's check the effectiveness of the signal’s work on this pattern using historical data.
The Head and Shoulders pattern has been known for a long time. John J. Murphy was the first who gave a detailed description of the pattern and visualized it in the book titled "Technical Analysis of Futures Markets: Theory and Practice". The Head and Shoulders pattern implies a transition from an uptrend to a downtrend. There is also an Inverted Head and Shoulders pattern that appears in a downtrend and signifies a potential reversal point to an uptrend. The pattern is quite common, but, in fact, rarely seen on charts in its original form.
The article discusses the figure of chart analysis "Hammer". What is this pattern? How often does this figure appear? In which markets and timeframes does the pattern have a higher quality? How effective is trading on this figure? We will answer these and other questions in this study.
There are many ways to determine a reversal in quotes flow of financial instruments. Among them, the most effective method is divergence. Divergence occurs when the price moves in the direction opposite to the technical indicator in the stock market. If a financial instrument shows new peaks or troughs on the chart and the indicator does not draw similar peaks, so it certainly implies a discrepancy between the price and the indicator readings. The resulting discrepancy is usually considered to be a reversal signal. In our study, we take one of the most popular oscillators, the RSI indicator. The RSI can track the quotes fluctuations and set its own minimum and maximum scales.