### Backtest the Hammer

This is the second post in my three part series of backtesting a few candlestick patterns. Earlier, I back-tested the Bullish Engulfing Pattern. Today, I will back test the Hammer.

Quantifying the Hammer

A Hammer pattern is formed when all the following conditions should be met :
1. today's bar is white (up day) followed by three down days
2. Candle's body height is less than 40% of the total candle height
3. Close is located near the top of the candle

Back Testing the Pattern

DataSet : SP500
BackTest Period : 15 years

•  Look for 3 consecutive down days
• A Hammer candlestick is formed on the fourth day
• Buy at Open on the fifth day
Sell Signal:
• Sell on the sixth day

Performance

I am only interested in finding out if this particular signal does act as a trend reversal signal. I am not interested in building a trading system. The best performance measure for this task is the Win-Rate as it represents the probability that my hypothesis is correct.

PERFORMANCE
Average Profit %-0.21%Win Rate47.87%Loss Rate52.13%
Average Bars Held2Average Profit %2.68%Average Loss %-2.86%
Average Bars Held2Average Bars Held2

Setup

#### 1 comment:

1. Do I read results well...it means that hammer is not a good reversal pattern?