Guide to Day Trading Strategies

after uptrend and are upside down).
Hammers and Inverted Hammers
Like bottoming tails and dojis, a hammer candle really only has signi
À
cance when it occurs in 
the context of a long downtrend. Hammer candles will always have small bodies and long lower 
wicks that are larger than the bodies. It is often said that a hammer candle at the bottom of a 
downtrend is hammering out a new base. The long bottom wick indicates a selloff in that period 
where the buyers quickly took the opportunity to jump in and push prices back up. This does 
not always mean the trend will reverse, con
À
rmation of the reversal will come when the next 
candle breaks the high of the hammer. This is called a candle over candle con
À
rmation. We will 
discuss the entry and exit indicators in detail a bit later.
An inverted hammer only carries signi
À
cance when it occurs at the end of a long uptrend. The 
inverted hammer will have a long topping tail and a small real body. The long topping tail 
indicates a surge of buying that was quickly reversed. This suggests indecision and a battle 
between buyers and sellers that was won by the sellers. When we are watching stocks trading 
in real-time, we can see the formation of the candle wicks. They often appear as a 
À
nal burst of 
volume and then a quick and powerful snap back up as the reversal begins.

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H O W T O D A Y T R A D E
27
Long Body Candles
The 
À
nal candle stick shape we will discuss are long body candles. A long body candle that is 
green, opens and surges up without ever going down. These candles close at the high and are 
indicative of extreme bullish sentiment. As day traders, we always want to be holding a stock 
while a long body candle is forming, but we never want to buy after a long body candle. If we 
buy at the top of a long body candle we are chasing a large move. Instead, we need to wait for 
a pullback opportunity if we want to trade with the trend, or wait for a reversal indicator if we 
want to short the stock.
A red long body candle shows extreme bearish sentiment as the candle opens and sells off for 
the entire candlestick period. If we are in a short position during the formation of a long body 
candle, we may want to consider covering part of our position into the 
Á
ush to the downside. 
After a series of several long body candles in a row, there is a high likelihood of a bounce. 
Anytime I miss a move, whether to the upside or the downside, I wait for a good reversal 
indicator. We will discuss the counter trend trading strategies later in this book, but if you can 
picture three red long body candles in a row that end with a bottoming tail candle, that is the 
type of reversal pattern we are going to be hunting for. If that bottoming tail also coincides with 
a daily support level, we may feel con
À
dent taking a candle over candle entry on the 
À
rst candle 
to make a new high following the selloff.

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