THE JOY OF CANDLESTICK TRADING - a Learning Experience

[tymen1]

To Watteau :

What we are trying to look at here is whether the BB is expanding. If it is expanding rapidly, it is dangerous to trade on a candle pattern going in the opposite direction. The momentum is definitely going in the direction of the BB. A flat BB suggests that there is no expansion and therefore, it is much safer to trade a reversal candle pattern.

You will see this in action in the coming posts.

[tymen1]

To Bill Clinton :

Thank you so much for your very kind compliments.

It is refreshing to see a face on the avatar as both you and Dale Paterson have done. I will be doing the same when I reach Honorary FX member status, but I have some distance to go yet!

Welcome to this candlesticks thread. I believe candlesticks are the best way to trade. They are the simplest method and do not suffer the lag that is involved in indicator trading - indeed their immediacy of presence is awesome.

Your settings are all correct but I would recommend a few modifications :

The GFT program has the Di Napoli MACD in its indicator selection. Use that one in place of the standard MACD. It operates a little faster.

Then set your Keltner channel to period 4 rather than 5. This brings it closer to the settings of the Starc bands, which you may also like to include in the 5minute charts.

Colour your Bollinger bands Blue or dark grey and set them as very thick lines.
Colour your Keltner bands (all three) in orange. (moderate thick lines)
Colour your Starc bands (all three) in dark green. (moderate thick lines)

This will help you distinguish between these lines more clearly.

I hope the material here is of benefit to you.

All the best of trading to you.

[tymen1]

To continue our trading, we do not need unnecessary obstacles ahead.
As such I want to dispel a few myths, indeed two of them that keep appearing on this forum.

If you believe these myths you will never be able to trade properly.
So here I shut them down once and for all for us candlestick traders so that we can continue to trade with true confidence that is needed for success.



Myth 1 - No stop loss needed.

People who do not like stop losses love margin calls!

It is ridiculous to trade without a stop loss. Some people boast that they do not use them and win 99% of the time. They obviously know nothing about money management or that even such a science exists.

But the 1% time they do lose they do all their dough and are left with nothing!

A stop loss will protect you from power blackouts, computer failure or internet failure. This is a PCI stop loss - power, computer, internet.

Then money management comes in. This is a well established science and is thoroughly proven.
With a stop loss, the first loss is always the least.
Without a stop loss, a trade that goes against you will know no bounds and a margin call is a real possibility. If it does come back to you it may do so only after a considerable period of time - and that is a dreadful waste of time that could have been used making good trades.

Even if it does come back, the profit potential may be very limited as I have found out in my earliest demo trading.




Myth 2 - The broker is out to run your stop loss.

Yes, the broker is an ogre! He has looked at your tax file number, and it has a 666 in it! Or you name displeases him because he had an unpleasant experience with another person with your name!

So, out of the thousands of trades he receives, he has singled you out, yes you and only you and he is out to get you. Your stop loss is a goner.
After all you were a born loser weren't you?!

Lets look at something.

Joe places a long trade and he sets a stop loss short at -50 pips. Now Tom sees the trade differently and decides to go short. He places a long stop at +50 pips.
Now the broker is going to run the stops. So how is he going to run both these opposite stops at the same time???

The broker warehouses all the trades and matches the longs with the shorts. As I understand it, any excess they offset with a hedge. I don't claim to know exactly how that works but Rhodytrader is the true expert who understands all the nuts and bolts of the way a broker operates with these things. He is welcome to post here to tell us how these offsets work so as to increase our limited knowledge.

I have examined carefully the GFT price feed with that of EFX, an ECN broker. They are usually the same, and, if there is a difference, it is only at most, 1 pip.!!

To finalize, I give the following hyperlink :Those Darn Market Makers


* * * * *


With these matters sorted, we should now be able to continue our trading with confidence.

[keitsuke]

I'm looking forward to Term 2 of Candle Stick School!

[tymen1]

Definitions :

At this point in time it is important to introduce a few definitions I use to save confusion among readers.

Main chart - this is the chart you open and use, be it 20 min, 1 hour, daily etc.

KC chart - this is the very short term chart using the Keltner channel (set to period 4, factor 1) to try to get best entries. This chart is approx 1/4 of the length of the main chart. So for example, a 1 hour main chart uses a 10 minute chart, same for 45 min main chart. A 4 hour main chart uses a 1 hour KC and for daily use a 4 hour KC chart.

PCI stop loss - this is the disaster stop loss used to protect against power, computer or internet failure.

Stop loss - just ordinary stop loss.

Amount - up till now we have been discussing entries using 2 lots. To make this more general, I will use the term "amount". In this amount, we can have as many "lots" as we please. These lots can be standard, mini or micro.
From now on, we will look at entries based on 2 "amounts" rather than 2 lots.

[tymen1]

I am going to show another evening star trade here but with a specific purpose, that being to come to a conclusion on the use of our stop loss.


By tymen1 at 2008-05-09

This trade, done on a demo platform shows an evening star on the BB highllighted in blue on a 50 minute chart.

The 4th candle (1st after the red) was entered late.
The entry, stop loss and take profit lines are shown. The risk/reward here is 1/2.

The next chart is a 10 minute KC chart of the 50 minute main chart trade.

[tymen1]

Here is the 10 minute KC chart. Notes below chart >>>


By tymen1 at 2008-05-09

The opening and my very late short entry are shown by the vertical lines. At my short entry the MACD was going up, the BB going slightly up - resultant going slightly up - best entry near upper KC band.

I got a very good entry at 70. (purple line). The target profit line can be seen but the stop loss is too high for the chart. I considered this trade to be somewhat high risk because of the rising of the BB at the red candle of the star.

Now what happened?

The trade oscillated between profit and loss as it went along. I was determined not to exit until it hit my target profit. I could easily have done an exit at any time it was showing profit, but then your risk/reward ratio is interfered with.
So I plodded along.

The last candle shows that the price came within a fraction of my target profit!!

Next chart.

[tymen1]

In the next main chart the final result is shown >>>


By tymen1 at 2008-05-09

Sigh! The price action went thro the stop loss first. Loss of pips - by a fraction. Was I too greedy?

Not really. An "on time" short entry would have had a lot less room for profit and a much longer distance to the stop loss - risk/reward a mess.

In the next post I will reveal a piece of insight that suddenly came to me. I saw a real breakthrough that shows that we can put a permanent end to this lost trades

Yep! - PERMANENT END TO LOST TRADES.

Do I have your undivided attention??

If I do then I will keep you in suspense, because this very exciting breakthrough will be revealed tomorrow!

[KENNETH LEE]

Tymen ; Now I have to sit on my hands till tomorrow. LOL But I am sure it will be a worth while wait.. Thanks as always

[greywolf238]

Tymen,
I'm wondering if it would be best to take trades that only agree with the resultant of the BB and Macd.
Example, in the last trade you showed us you said "At my short entry the MACD was going up, the BB going slightly up - resultant going slightly up"
So with an evening star pattern, which we always short, a resultant going up is not what we want, unless you have a wide stop loss and stay in the trade a bit longer hoping it corrects itself.
The resultant was correct after all, it did go up and hit your stop loss.
Your thoughts please..