The Hammer Candlestick Trading Strategy Guide

Here’s a simple formula that works.

I call it the T.A.E Formula.

Here’s how it works…

Trend — Trade in the direction of the trend

Area of value — Trade from an area of value

Entry trigger — Identify an entry trigger

Let me explain…

1. Trade in the direction of the trend

If you trade in the direction of the trend, you increase the odds of your trade working out.

You might be thinking:

“How do I define the trend?”

Well, you can use a Moving Average Indicator to help you.

Here’s how…

• If the price is above the 200MA, then have a long bias
• If the price is below the 200MA, then have a short bias

Next…

2. Trade from an area of value (AOV)

AOV is an area on your chart where buying/selling pressure is lurking around (E.g. Support & Resistance, Trendline, Channel, etc.).

The key thing is to enter your trades close to an AOV.

Here’s why…

• A favorable risk to reward (as your stops are tighter)
• Potential buying/selling pressure to push the price in your favor
• Stop loss harder to get triggered it’s “protected” by market structure

Next…

3. Identify an entry trigger

The purpose of an entry trigger is to identify a repeatable pattern that gets you into a trade.

So, once the conditions of your trading setup are met, you’ll look for an entry trigger to enter a trade.

It can be a Hammer candlestick or any other bullish reversal candlestick patterns.

Now, this is important…

You don’t want to trade entry triggers in isolation.

It’s only AFTER the conditions of your trading setup are met, then you look for an entry trigger.

Does it make sense?

Great!

Now let’s look at a few examples to see the T.A.E Formula in action…

T.A.E. winning trade on EUR/CHF:

T.A.E. winning trade on USD/ZAR:

T.A.E. losing trade on EUR/JPY:

Bonus Tip: The Break of Structure Technique

Here’s the deal:

The Hammer candlestick pattern is a powerful entry trigger.

And if you were to trade it, your stop loss is at least the range of the Hammer (or more).

But won’t it be great if you can reduce the size of your stop loss and improve your risk to reward?

This means if your original Hammer trade has a 1:2 risk reward ratio, then after applying this technique, you’ll have a 1:5 risk reward ratio (or more).

Sounds awesome?

The let me introduce to you the Break of Structure technique.

Here’s how it works…

1. Identify a trading setup using the T.A.E Formula (daily timeframe)
2. Go down to the 4-hour timeframe and look for a Bull Flag pattern
3. Buy on the break of the swing high
4. Set your stop loss 1 ATR below the swing low

Here’s what I mean…

T.A.E. Set-up on XAU/USD:

T.A.E. Set-up on HO1! (Heating Oil):

This is powerful stuff, right?

Once you’ve mastered this technique, you can consistently find insanely profitable trading opportunities (that most traders never find out).