Practical application: how and when to use it? - Hammer And Pump

The "Hammer and Pump" indicator from SMART TRADING INDICATORS is an advanced fusion of trading techniques, designed to provide clear signals in various market environments.

Here are the details on how to effectively apply it:

Initial Configuration:

1. Bollinger Bands Adjustment:

   • Period: This is the number of candles or periods considered for calculating the moving average and standard deviation. A longer period captures longer-term trends but may be less sensitive to rapid movements. A shorter period may provide more frequent signals but with an increased risk of false alarms.

   • Standard Deviations: This determines the width of the bands. Increasing this number will result in wider bands, which could be useful in more volatile markets. Reducing it will make them narrower, which may be useful for less volatile markets.

2. ATR Filter Activation:

   • ATR (Average True Range) measures market volatility. By activating this filter, "Hammer and Pump" takes into account the current market volatility when generating signals. This filter can be especially useful during economic announcements or events that cause abrupt price movements.

   • Adjust the ATR period according to your preference. A longer ATR period provides a broader view of volatility, while a shorter one reacts more quickly to recent changes.

TradingView Configuration:

It is configured within the TradingView platform using a series of adjustable parameters. Let me explain each of them:

• Enable strategy backtesting on chart: By enabling this option, you can conduct backtesting on the chart to assess how this strategy would have performed in the past. It's advisable to use the suggested settings and activate the 'Trailing Stop' control unless you're an expert.

• Activate Trailing Stop Control: This option allows you to activate the Trailing Stop control, which is a tool for managing risk in your trades. Essentially, it automatically adjusts to protect your profits as the price moves in your favor.

• Use Recommended Strategy for BTC/USD • [Timeframe]: By choosing one of these options, the indicator will automatically apply the optimal settings for the BTC/USD pair for the specified timeframe (15min, 30min, 1h, 4h, 1D).

• Use Recommended Strategy for ETH/USD • [Timeframe]: By choosing one of these options, the indicator will automatically apply the optimal settings for the ETH/USD pair for the specified timeframe (15min, 30min, 1h, 4h, 1D).

• Use Custom Strategy Parameters Settings: This option is for advanced users who wish to customize the strategy parameters. If you're not an expert, it's recommended not to enable this option.

• BB Period (Bollinger Bands Period): This parameter determines the number of periods used to calculate the Bollinger Bands. You can adjust it according to your preferences and trading strategies. Higher values smooth the bands, while lower values make them more sensitive to price changes.

• BB Deviations (Bollinger Bands Deviations): This parameter sets the number of standard deviations used to calculate the Bollinger Bands. You can adjust it to widen or narrow the bands. Higher values generate wider bands, indicating higher volatility, while lower values create narrower bands.

• ATR Filter (ATR Filter): This parameter determines whether an ATR (Average True Range) filter is used to enhance the indicator's signals. If it's enabled (true), the ATR filter will be applied; otherwise, it will be omitted. The ATR filter helps avoid false signals by taking market volatility into account.

• ATR Period (ATR Period): If the ATR filter is enabled, this parameter defines the number of periods used to calculate the Average True Range. You can adjust it according to your preferences and the market volatility you want to consider.

• Hide Labels: This parameter determines whether you want to hide labels on the chart. If you activate it (true), labels will not be displayed; otherwise, they will be shown.

Usage and Application:

• Trend Identification: First, observe the indicator's trend line. If it's green, we're in a possible bullish trend; if it's red, it's a bearish one. This simple visualization can help guide your strategy and know which direction to trade.

• Buy/Sell Signals: Keep an eye on the bomb (💣) and hammer (🔨) icons. A bomb suggests a potential buying opportunity, while a hammer indicates a potential sale. These signals are generated based on the interaction of price with the Bollinger Bands and the underlying trend detected by the indicator.

• Range vs. Trending Markets: While the "Hammer and Pump" can operate in any market type, it's important to identify whether the asset is in a ranging phase (moving sideways) or a trending one (moving consistently up or down). In range-bound markets, it might be wiser to wait for additional confirmations before acting on the signals.

• Additional Confirmations: While the "Hammer and Pump" is a powerful tool on its own, combining it with other indicators like RSI, MACD, or even candlestick patterns can offer a more comprehensive view and reduce the risk of trading based on a false signal.

• Risk Management: Whenever you take a position based on "Hammer and Pump" signals, ensure you set clear stop-loss and take-profit levels. This not only protects your capital but also allows you to trade with more confidence and discipline.

In summary, the "Hammer and Pump" indicator is a valuable addition to any trader's toolbox, but like any tool, its effectiveness is maximized when used appropriately and in conjunction with a well-thought-out trading strategy.