THE JOY OF CANDLESTICK TRADING - a Learning Experience

[tymen1]

To VulcanClassic :

It is very difficult to see your evening star pattern on the 1 hour chart(magnification would be helpful) but I think I have found it.

I would not have traded this pattern - too risky.

why?

Later rules.

With an evening star pattern we look for candles to walk the upper BB. This indicates a trend - in a 1 hour chart this could be reasonably strong. When the evening star appears it signals and end to the walk and we can expect the trend to reverse - even if only for a short time.

In your pattern there was no such trend. The price shot up from below, then shot down again - more of a price spike. Trading this is very risky.

As such, I have set a rule that the candles of the pattern must never penetrate the middle BB - they should be smaller than that. Preferably the green candle just prior to the pattern is also well above the middle BB.

You then give your downtrend room to move. Remember that the middle BB is the average and price action tends to return to this point. There is no guarantee that is will go past this point.

If you did not trade this one then just forget it. I will talk more about good and bad patterns later.

[VulcanClassic]

Ok thanks,

Gives me food for thought.

[tymen1]

And now a 5 minute chart to try pedict the price action 3/4 candles ahead.

Using the KC-BB-MACD approach. Lets see how we go : >>>



By tymen1 at 2008-03-17

>>> The last candle we have is a small green one with a wick (shadow) only on the bottom. It is sitting right on the middle KC band.

With a level resultant we expect the price action to hang about the middle KC. The next chart shows whether our prediction was accurate.

[tymen1]

Lets see the answer to our prediction.


By tymen1 at 2008-03-17

Amazing prediction accuracy. You may argue that this chart has been carefully "cherry picked" but I can tell you from experience that it works all the time.
Comments invited. We can now use this to get quality entries on the evening star pattern using a 5 minute chart.

At this point, stop losses have not been discussed - coming later.

Next charts - a fully live trade with the evening star from start to finish

[moneda]

Tymen,

Sorry, but I have not seen you explain how to draw the vectors... Did not remember learning it 40 years ago



Thanks

[tymen1]

To Moneda :

The vectors are drawn exactly parallel to the lines ie the BB vector is parallel or even on top of the middle Bolinger band.

Same with the MACD vector. Use charting tools to draw.

Now you don't have to draw them - you can make a mental note of their direction.

Examples :

up BB+down MACD=level price...............middle KC.
up BB+up MACD=up price.....................top KC.
down BB+level MACD=slightly down price.....................below middle KC
down BB +down MACD=down price...............bottom KC.
level BB +up MACD=slightly up price...........................above middle KC.
ETC.

Hope this helps...........if not post again and be very specific with your question.

[tymen1]

I will now go thro a live trade with an evening star pattern step by step using the BB-KC-MACD approach to get the very best entry.

Firstly study the chart below. Notes below the chart >>>


By tymen1 at 2008-03-17

The chart shows a beautiful evening star highlighted in light blue. The 2nd candle has peaked beautifully.
It is also on the upper Bolinger band which, together with the lower band, is shown in grey. The middle band is in blue.

The profit potential is shown by the dark blue dots - you trade short as far as you dare or use a MACD or stochastic or otherwise.

Now the 4th candle (green) is the entry candle at 11.45am. You can see that this candle has a very long upper shadow (wick).

The traditional shorting entry point is at the bottom of the 3rd candle and I have labelled this point "poor entry"
If you were to enter near the top of the wick you would have the "great entry" as labelled.

The difference between the great entry and the poor entry is about 30 pips. This is a whole shorting trade in itself let alone any further pips we get from shorting from the traditional entry point !!!

So you can see that good entries here can make a difference. This is for scalping. If you are a position trader (long term) then specific entry points would make little difference.

When you are looking to trade this set up it is assumed that you have a 5 minute chart fully ready with MACD, BB and KC already on it. You are already watching it, and when the 4th candle appears on the main chart, you are ready to attack.

Next chart - the 5 minute for best entry.

[moneda]

Tymen,


I understand now....great to be back in the classroom

Thank You.

[allate]

I just funded my account with 300dollars.What pattern of trade do i use.Pls explain the evening star pattern

[jlmac27]

Tymen,
Learning a lot here.Thanks for the reply.I am quiting my job to trade this system next week!!Just kidding....keep up the good work though very interesting,I have never looked at price this way.vectors and resultants,good stuff keep it up.