THE JOY OF CANDLESTICK TRADING - a Learning Experience

neboxian · June 27, 2008, 5:03pm

too soon to get out.
…all are pointing down… BB and Starc bands…
I’ll wait for the price to walk down the lower bands 2 0r 3 more candles…

Tymin:
(I have found on the 5m chart , Keeping the Kc channels and MacD on the chart as well …helps to predict general direction of next candle… it helps me stay in the trade. I coutinue to struggle with jumping out to soon…using your vector helps to determine the next candles’ kc quadrent… )

made 5 trades today
10 pip +3 pip + 25 pip + 6 pip - 8pip = total +36 pip:)
Thanks Tymin !!!..

How a bout some help with the bottom of the cycle… ie : morning star or engulfing or what ever you see occur the most…

I try to avoid going long …I get all beat up almost every time i try…:eek:

tymen1 · June 28, 2008, 9:26am

[B]Stage 9 was the last chart but I will extend the trades based on the main chart.

Final scores will then be given.[/B]

tymen1 · June 28, 2008, 9:29am

I will continue a final candle on the main chart with your trade since the stages have now finished…you will be pleased!

tymen1 · June 28, 2008, 9:33am

OK then, I shall modify your pip score accordingly to be very fair.

I shall make a generous exit at one of the 1,2,3 numbers.

tymen1 · June 28, 2008, 9:51am

too soon to get out.
…all are pointing down… BB and Starc bands…
I’ll wait for the price to walk down the lower bands 2 0r 3 more candles
…Neboxian.

I am going to exit with one amount now at 107.90 and let the other lot run
…Trav72.

Same as with VulcanClassic - I will extend your trades one extra candle on the main chart since the stages are now closed (exercise closed).

The final scores will then be set and we can look at the conclusions.

tymen1 · June 28, 2008, 10:01am

[B]Answer to Stage 9[/B]

The Starc bands were travelling level.

The correct thing to do here would be to exit at the bottom of this last candle.

Walking the lower Starc band for an exit [U]only applies [/U]when the Starc band is [U]going down.[/U]

I will be making a full summation of these matters in the conclusions.
It is important that some bits of theory are repeated so readers are not confused.

tymen1 · June 28, 2008, 10:46am

[B]This is the final chart of the series.[/B]

It is the [U]main chart[/U] again giving a full perspective >>>

By tymen1 at 2008-06-28

I will conclude the pips scores by giving exits at the bottom of candle 8 which is 108.84 (not labelled). Since this is a 25 minute chart, one candle here includes 5 candles of a 5 minute chart.

That should be fair.

[U]There are some very important conclusions to be made here.[/U]

As you can see, this is a typical example where the evening star broke the back of a rising trend but did not reverse it. You could suspect that this was coming because the width of the BB had not changed and the middle BB was going up relentlessly.
The price action went horizontal and, therefore, attempts to make a big profit out of this trade were fraught with danger unless another pattern appeared, which did not happen.
A small profit is, therefore, good.
A loss on this trade should not have happened.
As a rule, always put your stop loss at 3 pips above the star in an evening star. There should then, be no fear of a retrace going thro the stop loss. Do not expect this to happen and do not trade that way.
Trading beyond about 7 candles on the main chart is not good. The further away you get from the pattern, the less significant the pattern. At some point it has no meaning and to procede beyond that point is more like gambling than trading. The price action could easilly have gone up again at any time. Therefore, trades with this senario need to be quick.
Trading the retraces and exits on a 5 minute (or short term) chart,…here are the repeats.

[U]With the Starc going up :[/U]
Look for a retrace to touch or [U]go thro [/U]the upper Starc.
You can wait 3 candles to see if the [U]price walks the upper Starc[/U] to get as close to the top of the retrace as possible.
Exit if the price action is close to the lower Starc. [U]No band [/U]walking.

[U]With the Starc going level :[/U]
Look for a retrace to touch or come close to the upper Starc.
Look for an exit to touch or [U]go thro [/U]the lower Starc.
[U]No walking bands[/U] here.

[U]With the Starc going down :[/U]
Look for a retrace to touch or [U]come close [/U]to the upper Starc. [U]No band [/U]walking.
Look for an exit to touch or [U]go thro [/U]the lower Starc.
You can wait 3 candles to see if the price [U]walks the lower Starc [/U]to get as best an exit as possible.

Finding the retraces and exits are the [U]opposite [/U]procedures with the Starc going up or down.

So procedure for finding [U]retrace [/U]for Starc [U]up [/U]is the same as finding [U]exit [/U]for Starc [U]down[/U].
Procedure for finding [U]retrace [/U]for Starc [U]down [/U]is the same as finding [U]exit [/U]for Starc [U]up[/U].

[B]This is heavy theory.
I will post a picture of this to simplify this soon.

It applies to [U]all patterns.[/U][/B]

tymen1 · June 28, 2008, 12:12pm

[B]Now to finalize all the pip scores.[/B]

I have deliberately chosen the most difficult of all trades you are likely to get. If you can make a profit on this one, then you can win anything.

I will exit everyone who needs to be exited at the low of candle 8 (not labelled) of the main chart.

The price here is 107.84

[B]VulcanClassic[/B] -

I want to see what the next candle does.

OK, so exit at low of candle 8.
107.98(av entry)-107.84 (low of candle 8) = 14 pips.
With 2 amounts this is 28-spread (1) = [B]Grand Total = 27 pips. [/B]

Congratulations!!
Thats a very good profit for a most difficult trade.
However, I have exited you at candle 8. This is very late and it is not recommended to stay this long in a trade of this type.

[B]Trav72[/B] - exited both amounts at 107.94 earlier on.(not cheating!) Therefore…

107.98(av entry)-107.94 = 4 pips.
With 2 amounts this is 8-spread (1) = 7 pips.
With 2 amounts re-entry at 108.04…
One amount exit at 107.90…that is 108.04-107.90 is 14-spread(1) = 13 pips.
One amount exit at 107.84…that is 108.04-107.84 is 20-spread(1) = 19 pips.
If we total this we get 7+13+19, = [B]Grand Total = 39 pips.[/B]

Congratulations!!
Thats a very good profit for a most difficult trade.
However, I have exited you at candle 8. This is very late and it is not recommended to stay this long in a trade of this type.

[B]Kenneth Lee[/B] -

I would have been out way before 108.04 most likely around one of the 1,2,3 numbers.

I will let you break even.
107.97(av entry)-107.97 = 0 pips.
With 2 amounts, this is 0-spread(1) = [B]Grand Total = -1 pip . [/B]

Congratulations!
You have been very astute so as to prevent any losses on a most difficult trade.

[B]Neboxian [/B]-

if the next candle opens red, please add 1 more amount
(2+1) = 3 amounts

Candle DID open red so…
107.92 initial entry + 108.03 +108.03 (generous) all divided by 3 = 107.99 as new average entry.

I’ll wait for the price to walk down the lower bands 2 0r 3 more candles

OK, so exit at low of candle 8.
107.99-107.84 = 15 pips.
With 3 amounts this is 45-spread (1) = [B]Grand Total = 44 pips. [/B]

Congratulations!!
Thats a very good profit for a most difficult trade.
However, I have exited you at candle 8. This is very late and it is not recommended to stay this long in a trade of this type.
[U]Further, you have entered 3 amounts, not 2. By doing this, you are risking a very large loss if the trade should go against you![/U]

[B]Ericoco[/B] -

i would not have exited the trade in stage 8. and i would not exit now since the middle BB and the starc bands are heading down .will wait for the price to walk the bands for 2/3 candles before i exit.

OK, taking up your trade from the beginning…

averaged…(107.92+108.03)/2 = 107.97
A profit will start to be made when the price action goes below 107.97
Final exit 2 amounts at low of candle 8.
107.97-107.84 = 13 pips
With 2 amounts this is 26-spread (1) = [B]Grand Total = 25 pips. [/B]

Congratulations!!
Thats a very good profit for a most difficult trade.
However, I have exited you at candle 8. This is very late and it is not recommended to stay this long in a trade of this type.

The others, [B]Sinn1, Keitsuke and Ray 1[/B], I cannot do in all fairness since they have not posted again.

[B]BrianSNJ [/B]- temporary delay due to broker changeover.

tymen1 · June 28, 2008, 1:21pm

[B]My Own Trade of this Exercise.[/B]

I traded this exercise myself so that I was familiar with the various decision points.

I must stress also that I did not trade beyond candle 7 on the final main chart.
[U]I believe that trading too far from the evening star pattern is dangerous, especially so in this case where the price action went merely level.[/U]

I chose to post this exercise because it was difficult - in fact, as difficult as they come. To make any money on this one means you are doing well and can handle any trade to come.

[U]Stage 1 - entry.[/U]
I entered using the KC chart method like everyone else and got the same entry as everyone, namely 107.92

[U]Stage 5 - first retrace.[/U]
The candles had walked the upper band very weakly and by now I was in, not with the best entry of 108.04, but rather 108.03
My average entry was, therfore, 107.97

[U]Stage 7 - first potential exit.[/U]
A potential exit at 107.94 was offered.
This was a contentious point. Nobody wanted to exit here because there was only a 3/4 pip gain in it.
Kenneth Lee ask me why I got out.

I knew, (and readers should have known it too) that the price action after this pattern would most likely [U]go level, not down[/U]. As such, it is a high risk trade, with little profit potential, and could, at any time, just go up again.

Knowing this, and seeing that the Starc band was level, I decided to exit once the price came near the lower Starc band. It did, and I exited 2 amounts at 107.94

Now 107.97(av entry)- 107.94 = 3 pips
With 2 amounts, this is 6-spread(1) = 5 pips !!
Anyhow…!!

[U]Stage 8 - 2nd retrace.[/U]
I got a winner here and entered 2 amounts short at the top - 108.04
You see the Starc was going level and, therfore, it was reasonable to assume that this green candle, which was so close to the upper Starc, was near a retrace top, if not the top itself.

[U]Stage 9 - 2nd potential exit.[/U]
This was a total give-away exit!!
The Starc was level, meaning that there is no waiting to walk the lower Starc for an exit.
The price had gone way thro the lower Starc so exit for 2 amounts it was!!

To exit only 1 amount here would mean gambling with the future of the level price action and that is simply not on.
So now 108.04-107.90 = 14 pips.
With 2 amounts, this is 28-spread(1) = 27 pips.

This concluded the trade for me and my total is 5+27 = [B]Grand Total = 32 pips.[/B]
[B]Trade time = one and a half hours.[/B]
At 1 standard lot …= $320. That is $213 per hour.

Had I continued to low of candle 8 then my profit would have been…
108.04-107.84 = 20 pips.
With 2 amounts, this is 40-spread(1) = 39 pips.
39+5 = Grand Total = 44 pips with 2 amounts.

[B]My risk/reward ratio[/B]

risk…entry to stop loss…108.11-107.92 = 19 pips.
reward = 32 pips.

Therefore…risk/reward = 19:32 = 1:1.7
An extremely favourable figure for such a risky trade!!

tymen1 · June 28, 2008, 1:46pm

[B]My next post will bring what I have promised all along - the new ultimate trading method for all the candlestick patterns.[/B]

This post will come with picture and complete analysis.

After that, a helpful post showing the Starc band with retraces and exits in pictures…easier to understand and remember.

Then we will start on that subject that has been pending for so long…

other candlestick patterns!!

First one, the engulfing pattern - going long.

VulcanClassic · June 28, 2008, 2:05pm

Awesome,

I can’t wait.

KENNETH_LEE · June 28, 2008, 6:48pm

I really must go back and reread the thread and make some more notes.

Thanks for all the lessons Tymen.

I need to do some more work on the 5 minute information , This should give me a greater success rate. As I generally just stay on the upper time frame charts.

I have taken information from this thread and intergarted into other strategies. I have had success with.

The best idea being alot of traders are looking at the same reversal patterns , But waiting on indicators, and then trying for greater pip movement . So if I go for less with greater value , I am in and out before some are even in and have tighter stops. Which is good for me personally.

It is what I have adopted within my trading. It isn’t the pip count. It is the account ballance that buys groceries, and less pips equal less risk, on any strategy.

Almost every thing you read is greed ( wanting more pips) is a account killer, Be happy with a moderate amount.

But in all honesty,I am begining to feel adapting this entire sysytem as my main trading strategy would be a plus.

So in closing thanks for all the great teachings,and I await the next installment with eagerness. Ken

tymen1 · June 30, 2008, 5:24am

Good for you Kenneth!!

Go for it!!

You are doing very well!!

You are right about the greed and wanting a moderate amount.

Thank you for your ongoing compliments.

tymen1 · June 30, 2008, 5:44am

[B]The Ultimate Trading Method for Short Trading Candlestick Patterns.[/B]

By tymen1 at 2008-06-16

The trading exercise above, where there were several paticipants, was a natural lead in to this trading method which I now give :

I have developed this approach after much consideration.

I believe it is the ultimate method for dealing with price action when trading a candlestick pattern that dictates that you go short.

I stand to be corrected if someone can show a better approach.

This method makes use of the many retraces that appear after a short pattern.
It will also work if the price action drops like a bomb after the entry candle.

In fact, this method takes account of [U]every senario [/U]and will deliver a profit in all circumstances if you are careful.

Multiple amount trades where you stay in the trade and exit in stages work well only if the price drops like a bomb, but if there is a sharp retrace, then there is “time out” waiting for the price to go down again.

Also, if the price action remains level, then ordinary multiple amount trading will not make a profit at all.

But the above drawing takes account of everything that can happen.

So study this drawing, I do believe it is the best of all worlds.

[B]In the next post I shall give an analysis.[/B]

tymen1 · June 30, 2008, 7:02am

[B]Analysis of the Ultimate Short Trading Method.[/B]

[B]This method has many advantages.[/B]

Probably the main one is the fact that it can handle any trading condition that may occur. In that way it is all-inclusive.

Now let us look at some details…

Looking at a retrace first…

we note that the trade is exited after 10 pips instead of running to a retrace point and then adding a 2nd amount. Why is this so?

By way of explanation, lets look at a trade done earlier in this thread - a “retrace first” trade :

[U]Old method[/U]

In this trade, we short enter 1 amount only at 66.
2nd amount entered at retrace of 88.
Average entry = 77.

Profit will [U]only [/U]be made when price falls below 77. (above=loss, below=profit).

When price falls and returns to price 77 (entry price)…[B]profit/loss at price 77 = 0[/B].

[U]Now lets use the Ultimate Method.[/U]

In this trade, we short enter 1 amount only at 66.
We exit after 10 pips, that is price 76. (spread included).
Profit/loss so far = -10 pips

2 amounts re-entered at retrace of 88.

Profit made [U]immediately [/U]when price falls.

When price falls and returns to price 77 we have 88-77 = 11pips profit.
With 2 amounts this is 22 pips profit.
Now subtract the 10 pips from above…“profit/loss so far = -10 pips”

Therefore…[B]profit/loss at price 77 = +12 pips[/B].

The profit/loss of +12 pips is superior to the earlier profit/loss of 0 at the same price level of price 77.

[B]This amazing difference in the amount of profit at the same price levels shows the power of the Ultimate Trading Method.[/B]

tymen1 · June 30, 2008, 10:05am

[B]Analysis of the Ultimate Short Trading Method for Candlesticks (part 2)[/B]

To make the above post clearer, I will use another, simpler example.

Remember, we are going short.

[U]Old method.[/U]

In this trade, we short enter 1 amount only at price of 1.
2nd amount entered at retrace of price 19.
Average entry : (19+1)/2 = 10.

Profit will [U]only [/U]be made when price falls below 10. (above=loss, below=profit).

When price falls from 19 and returns to price 10 (entry price) …[B]profit/loss at price 10 = 0.[/B]

[U]Ultimate Short Trading Method[/U]

In this trade, we short enter 1 amount only at price of 1.
We exit after 10 pips, that is, at price 11. (spread included).
Profit/loss so far = -10 pips

2 amounts re-entered at retrace of price 19.

Profit made [U]immediately [/U]when price falls.

When price falls and returns to price 10 we have 19-10 = 9 pips profit.
With 2 amounts this is 18 pips profit.
Now subtract the 10 pips from above…“profit/loss so far = -10 pips”

Therefore…[B]profit/loss at price 10 = +8 pips.[/B]

As in the previous example, the profit/loss of +8 pips is superior to the earlier profit/loss of 0 at the same price level of price 10.

[B]Again, the superiority of the Ultimate Short Trading Method is immediately evident.[/B]

tymen1 · June 30, 2008, 10:44am

[B]Analysis of the Ultimate Short Trading Method for Candlesticks (part 3)[/B]

Another 3 advantages…

You do not have to exit after 10 pips on a retrace first if you wish. You can always exit earlier. For example, you may like to exit after 9 pips. That will give you a 1 pip advantage.

The 10 pips is not a hard and fast rule!

[U]Stop loss.[/U]

With this method, the stop loss then for a retrace first trade is 10 pips (or 9, or whatever you set it at.)

This is absolutely great. You do not have to worry about setting a stop loss at the top of the star anymore!!!

If it is a “retrace first” trade, you will know in advance where you will exit!!

Now what about those retraces - where do I set the stop loss for those??

Say 10 pips again!! - or 3 pips above the star, whichever is the least!! The stop loss is later lowered to make your trade break even if the price action suddenly reverses against you.

In the case of a “pips first” trade, there will be retraces, even when the price drops like a bomb in your favour.

After a pips first leg (which is exited in accordance with Starc band rules), a retrace will occur and these are traded with the stop loss in the same way as above (10 pip gap).

3)By having the stop loss set in this way, you know your risk in advance!! And it is only 10 pips at the most!!
Wow!!

No more worrying about 29 pip stop losses!!!

[U]You only have to trade now and get a profit above 10 pips to get your risk/reward ratio in proper order.[/U]

[B]I now invite questions.

I also have to post a picture of the use of the Starc bands for entries/exits which will conclude the posts about the Ultimate Short Trading Method for Candlesticks.

But this post can wait till tomorrow.

I have posted an unusually large amount of material since Saturday and readers will need time to digest it all.

So I will slow down just for now and give others a go.[/B]

Ray_1 · June 30, 2008, 11:52am

Hi tymen1,

Recently I had been busy with my personal matters and no time to visit the forum. I found that i was lagging behind and missing out on great stuffs. Time for me to reread all your previous posts. I must say you are really a good teacher in imparting all your knowledge. Hope that I can absorb all the info in time for your next candlestick pattern.

KENNETH_LEE · June 30, 2008, 12:22pm

I like this idea much better than figuring your risk:reward after a trade…

This way we can pre-set our Trading platform for max loss and a first profit target.

Plus if you do Have a loss you only need a 10 pip trade to make it up instead of maybe 3… So money management will be easier…

This is a perfect idea for me personally as I have had trouble with stops… But with some input from others on Babypips I came to realize it was mainlly when I got a large loss going that I didn’t want to close it.

But with a set 9 or 10 pip stoploss. This will work in my favor,and keep from getting more than 10 pips in wrong direction (maybe 12 or so with slippage)
I can live with that.

Again this is great… Thanks Tymen, Look forward to more… Yippeee Ken

VulcanClassic · June 30, 2008, 12:37pm

Tymen,

I’m not criticising, just asking;

Seeing how the price generally won’t retrace past the high of the pattern, but can come close to it, wouldn’t this increase the chance of getting stopped out?