Here is an example of contrarian entry with Hammer, RSI and SMA (50).
During a downtrend (or downward correction) the appearance of a Hammer filtered by RSI at the oversold area.
One could consider buying when the next candle exceeds the high price of the Hammer. Place a protective stop loss at the bottom (low) of the Hammer.
You can consider the following actions, bearing in mind that a Take-Profit strategy is heavily dependent on the trading profile of each individual.
- Close the position when the price reaches the SMA(50).
- Close 50% of the position when price travels 100% the length of the Hammer’s range, then close the remaining 50% when price reaches the SMA(50).
- Other combinations may be applied.