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3 Day Hammer Stocks
This is the basis of my favorite
stock trading systems, The Three Day Hammer. This is a pattern written
about by both Laurence Connors and Jeff Cooper. It solves the problem
of stock trading systems of when and how to enter runaway markets. To
read more about this method, I recommend
Hit And Run Trading and Laurence
Advanced Trading Strategies.
Richard Wyckoff and W.D. Gann,
technicians from more than 70 years ago, noticed that very strong and
very weak markets usually do not correct for more than three days. By
identifying these strong markets, waiting for a three day pause, you
jump aboard the selected stock picks for the climb to new levels.
The 14-day -DI must be greater than the 14-day
Wait for a 3 day correction. This means that
the stock must make three consecutive higher highs or any
combination of two higher highs and an inside day.
Short on day 4 only if the stock moves .10
below the day-3 low.
If filled, place a protective stop .10 above
the day-3 high.
If the position moves in your favor, use a
Use of proper candlestick formations in the
third bar will increase probability of a profit. See The Three Day
Near the close of day one, if the stock appears
to be closing down for the longs or up for the shorts, I generally
close out the position. I find the best stock picks from these trades
are profitability from the start.
If you are not stopped out by close of day 5,
close the position.
– For all stock trading systems, you must use proper money management.
Without the proper stock size to portfolio, you are doomed. This is
discussed in detail in
The Three Day Hammer.