The Hammer Pattern Recognition in TradingView
Coding a Hammer Candlestick Pattern Scanner in TradingView
Candlestick patterns are a great addition to market analysis. Some may even consider them vital in research and trading. This article presents the Hammer pattern and shows how to code a scanner in TradingView that detects it.
For the complete collection of candlestick patterns in detail with back-tests and technical strategies, you can check out my newest book with O’Reilly Media. The book features a huge number of classic and modern candlestick patterns as it dwelves into the realm of technical analysis with different trading strategies. The book comes with its own GitHub and is dynamic in nature as it is continuously updated and questions are answered on the O’Reilly platform promptly.
Mastering Financial Pattern Recognition
Amazon.com: Mastering Financial Pattern Recognition eBook : Kaabar, Sofien: Kindle Storeamzn.to
The Hammer Pattern
Candlestick charts are among the most famous ways to analyze the time series visually. They contain more information than a simple line chart and have more visual interpretability than bar charts.
The Hammer pattern is a reversal candlestick configuration which is still ambiguous and has many names (like the hanging man and the shooting star). This article assumes one name and it is the hammer. It also assumes more intuition in that the long wick is the point of reversal.
The bullish Hammer is composed of a bullish candlestick that has a long low wick and its close equal to the high. The following Figure shows a theoretical illustration of a bullish hammer.
The bearish Hammer is composed of a bearish candlestick that has a long high wick and its close equal to the low. The following Figure shows a theoretical illustration of a bearish hammer.
Coding the Scanner in TradingView
The conditions of the pattern are relatively easy to code especially in a straightforward and simple coding language such as Pine Script, TradingView’s native language.
The aim of the scanner is to detect the Hammer patterns using the following indications:
A green arrow for bullish Hammer signals.
A red arrow for bearish Hammer signals.
// This source code is subject to the terms of the Mozilla Public License 2.0 at https://mozilla.org/MPL/2.0/
// © Sofien-Kaabar
//@version=5
indicator("Hammer Finder", overlay = true)
bullish_hammer = close[1] > open[1] and close[2] > open[2] and close[2] == high[2] and close[3] < open[3] and math.abs(close[2] - open[2]) < math.abs(close[1] - open[1]) and math.abs(close[2] - open[2]) < math.abs(close[3] - open[3])
bearish_hammer = close[1] < open[1] and close[2] < open[2] and close[2] == low[2] and close[3] > open[3] and math.abs(close[2] - open[2]) < math.abs(close[1] - open[1]) and math.abs(close[2] - open[2]) < math.abs(close[3] - open[3])
plotshape(bullish_hammer, style = shape.triangleup, color = color.green, location = location.belowbar, size = size.small)
plotshape(bearish_hammer, style = shape.triangledown, color = color.red, location = location.abovebar, size = size.small)The following Figure shows a signal chart after the code has been applied and executed. Bear in mind that this pattern is quite rare.
The following Figure shows another signal chart.
Summary
To sum up, what I am trying to do is to simply contribute to the world of objective technical analysis which is promoting more transparent techniques and strategies that need to be back-tested before being implemented. This way, technical analysis will get rid of the bad reputation of being subjective and scientifically unfounded.
I recommend you always follow the the below steps whenever you come across a trading technique or strategy:
Have a critical mindset and get rid of any emotions.
Back-test it using real life simulation and conditions.
If you find potential, try optimizing it and running a forward test.
Always include transaction costs and any slippage simulation in your tests.
Always include risk management and position sizing in your tests.
Finally, even after making sure of the above, stay careful and monitor the strategy because market dynamics may shift and make the strategy unprofitable.