AGQ Proshares Ultra Silver ETF – Bullish Reversal Hammer Candlestick Pattern

by Olivier on February 6, 2010

Today was reversal galore. Lots of stocks printed reversal candles. For those of you familiar with candlestick theory ‘Hammers’ were printed. The term hammer is used because of the underlying psychology of the chart pattern. Price is literally ‘hammering out’ a bottom and as support is tested and holds it leaves a candle with a long tail on the charts. A simple trading strategy is to go long the next day if the stock opens or trades above the high of the day the hammer was printed. A sound stop loss would be below the tail of the hammer. Of course it is not really that simple. In order to identify valid or tradable hammers you need to analyze a few more things:

  • Was there some kind of blow-off capitulation type volume?
  • Has the decline of the stock lasted long enough?
  • Are there other clues within the chart (e.g horizontal support trend lines, retracement levels etc.) telling you the support level is sound?

I think all of the above mentioned factors are met. AGQ – ProShares Ultra Silver would be just one example to illustrate what I look for when I try to identify valid reversals:

AGQ Proshares Ultra Silver ETF

Up-to-date AGQ Silver ETF Chart on my public list.

It looks like I might buy a few more positions if we indeed witnessed a sustainable reversal pattern. It is still too early to tell. We need follow through and as I’ve stated for quite a while now there is no need to rush things. My plan going forward is to further reduce my MXI.V – Merrex Gold position which has now become so small it can’t hurt me. On the other hand I am looking to further increase my MRZ.V – Mirasol Resources exposure should the stock take out the 2.50 level. Looking back RVS.V – Riverstone Resources and VTR.TO – Volta Resources would have been better West African Gold Mining Stock choices. That’s simply business as usual. Hindsight is always 20/20. The only thing you can do is to monitor your open positions and to: Kill your losers and push your winners.

Patience is a virtue.

Have a great weekend!

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