THE JOY OF CANDLESTICK TRADING - a Learning Experience

Beginner Questions
705

[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 !! :stuck_out_tongue:
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!! :slight_smile: :slight_smile: :slight_smile:

706

[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!! :slight_smile:

First one, the engulfing pattern - going long. :slight_smile: :slight_smile: :slight_smile:

707

Awesome,

I can’t wait.

708

:stuck_out_tongue: 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 :slight_smile:

709

Good for you Kenneth!! :slight_smile: :slight_smile:

Go for it!! :slight_smile:

You are doing very well!!

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

Thank you for your ongoing compliments.

710

[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]

711

[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? :confused: :confused:

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]

712

[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]

713

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

Another 3 advantages…

  1. 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!

  1. [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!! :smiley: :smiley: :slight_smile: :slight_smile:

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]

714

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.:slight_smile:

715

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 :smiley:

716

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?

717

I’LL take a stab at this,

I think the idea is to limit our loss and have less of a average to make up.

Even it continues to go against us , The loss will be less as we got in higher so less pips to our stop loss.

That is how I see it any way.

Plus you could put your stop back at the top of the pattern if you wanted, it should be close there anyway. But you wouldn’t have the extra pips lost from where you got out with your 10 pip stop loss and where you got backin.

Say it retraces 20 pips you take a 10 pip loss reenter at the 20 pip area and it still goes against us , you save 10 pips.

That is my take on it anyway… :slight_smile: Ken

718

I guess it’s all about the second entry with 2 amounts being in profit before the averaged entry of the previous method.

Need 5 pips with 2 amounts to break even with the 10 pip stop.

719

Great thread! I’ve been reading and re-reading it over the weekend. Is there a similar alternative to the keltner band?

720

Although Kenneth Lee tried to answer this one, I will answer it myself carefully.
Thanks Kennneth, for trying - that is how you improve your own work!! :slight_smile: :slight_smile:

To answer…No.

The first stop loss of 9/10 pips is [U]deliberate[/U].
It shuts down a runnaway retrace first trade.
This works in accordance with the following hyperlink :

http://forums.babypips.com/analyst-arena/13522-weekly-trading-lesson-making-correcting-trading-mistakes.html

Each of the retraces which are traded have their own respective stop losses [U]as seen in the diagram.[/U]

You can choose to have each stop loss different…say each one 10 pips (or less if you wish) above each individual retrace point price.

So if you have 3 retraces at prices 25, 33, 17, then you could set each stop loss at prices 35, 43, 27 respectively.

…Or you could have each stop loss the same…that being the 3 pips above the star!!

For example, the star top may be price 35. Then you could set a [U]universal [/U]stop loss of price 38.

[U]The choice is yours to make.[/U]

In either case, you always lower your stop loss when the price action drops so that you break even if the price action suddenly betrays you.

Need 5 pips with 2 amounts to break even with the 10 pip stop.

That is absolutely correct. But it is also easy to make those new pips.
5 pips on a retrace is really nothing.

Remember also that this happens only when it is a “retrace first” trade.
If we have a “pips first” trade, we need not worry.

This [B]Ultimate Candlestick Trading Method [/B]will be used exclusively in our future trading of the engulfing pattern.
You will then get a better idea of how it works and the great advantages it has.

721

Welcome to this thread Edacsac. I hope you will find your time here rewarding. :slight_smile: :slight_smile: :slight_smile:

As you go on reading the thread, you will be aware that the settings for the Keltner bands in this trading method are not the default ones but …

period …4 or 5
factor…1

The Starc bands are a similar alternative to the keltner bands and these are used extensively in trading.
You will see their use as you go on in the thread.

The Starc bands have no settings.

You can read more about these bands on the following hyperlink :

Capture Profits Using Bands And Channels

722

Thanks Tymen, Put on 5 trades today … using the ultimate candle stick method …the first one didn’t go so well …the problem was i jumped the gun on the retracement …so by the time price fully retraced and just barley came back to me, i got out with a small 1 pip profit…that was great…didn’t lose any $$…

the trick i suppose is to be careful on the reentry point …i noticed on the 5m chart a reversal candle pattern will usually develop at the top of the retracement… similar to the one on the main chart … if one dosent develop…i considered the trade to be over…

so the following retracements were entered at the point of a dark cloud, engulfing,or evening star on the 5 m chart …and it went very well…

made a total of 70 pips on 3 trades :smiley:

Took a 10 pip loss on the final trade …I got stopped out and then price immediately ran the correct direction and left me wishing i was still in the trade :frowning:

also, another helpfull tip i discovered, is if an evening star starts to develop on the 20m chart, I will wait for it to develop on the 30 or 35 m chart before i go in…the pattern seems to work better once it develops in the higher time frame…

… wow!!! what a great method you have shared with us…Thanks!!!

723

The [B]Ultimate Candlestick Trading Method [/B]appears to have a built in protection mechanism. :smiley: :smiley:

Well done!!
No pips lost!
No harm done!

the trick i suppose is to be careful on the re-entry point …i noticed on the 5m chart a reversal candle pattern will usually develop at the top of the retracement… similar to the one on the main chart … …

I have noticed this too…but it is not always the case because the patterns developed on 5 minute charts are unreliable, that is, they do not nearly have the reliability of the longer term charts.

Patterns formed on a daily chart, for example, are extremely reliable.

so the following retracements were entered at the point of a dark cloud, engulfing, or evening star on the 5 m chart …and it went very well…

So I take it that you short entered when the price started to go down again.

It is best to get as close to the top of a retracement as you can.

Posting some pictures/charts of these entries would be of great interest to us all and make a good discussion point.

made a total of 70 pips on 3 trades

That’s 23 pips per trade - well done!!

I have yet to see that sort of consistency from the indicator traders, with such a short learning time!! :smiley:

Took a 10 pip loss on the final trade …I got stopped out and then price immediately ran the correct direction and left me wishing i was still in the trade

This can happen even to professionals.

Oh dear,… a huge, massive, tremendous, gigantic loss of…10 only pips. :smiley:

Your risk/reward ratio is completely intact.
At 23 pips win and 10 pips lost we have 10:23 = 1:2.3
Excellent!!

also, another helpfull tip i discovered, is if an evening star starts to develop on the 20m chart, I will wait for it to develop on the 30 or 35 m chart before i go in…the pattern seems to work better once it develops in the higher time frame…

The pattern will develop quite differently on a higher time frame. Be careful here. As I said, higher time frames are more reliable.
But when the pattern has formed on you chart, and it is a quality one, with the BB favourable, then it is time to enter.

wow!!! what a great method you have shared with us…Thanks!!!

Glad to be of service to you Neboxian!

It looks like you are really understanding the system and how it works.

Now [U]continue to soldier on[/U] and we will soon be considering a new pattern, the engulfing pattern.

724

[B]The time has now come to show the Starc bands and entry points in pictures as I have promised[/B] >>>


By tymen1 at 2008-07-01

This picture shows the Starc bands going up,level and down.

Retrace points are shown in blue.
Exits are shown in red.

The dots represent the most likely points. The larger dots are the highest probability.

The arrows with the 1,2,3 are walkings of the bands, either touching or some distance away. The numbers are the candles…1st, 2nd and 3rd on the band walk.

I have kept the drawing simple, without clutter.

You may find it useful to print the picture for future reference.