THE JOY OF CANDLESTICK TRADING - a Learning Experience

[tymen1]

Originally Posted by VulcanClassic

Sorry to ask again, I guess it got lost in the broker discussion.

Re Quote: Do you take a pattern on any timeframe, or do you blend them together in your mind to paint an overall sentiment?

Sorry about my omission Vulcan Classic. Recovering from illness, I had to get back to the share market, my main income. I saw the other posts but this one I missed.

So now to answer :

No, I take each pattern individually - no blending.
It nice to watch the same price action happening on all the other times frames in front of you but I religiously stick with the one chart where the pattern has appeared.

This has to do with consistancy. Imagine that this was the only chart you had. Now you see a beautiful candlestick pattern on it with great potential.
Would you trade it?
Of course you would.

You would not say - oh well, I will give it a miss and check out other time frames first. Confusion would set in and you would make no money.

Although longer time frame candlestick patterns are more reliable because they encapsulate more of the market and that over a longer time period, that does not negate the use of shorter time frames.

Further, I believe we have beefed up the reliability of our charts by trading only on the outer Bolinger bands.

These bands are proven to work. I got the idea from reading my copy of the book "Bolinger on Bolinger Bands" by John Bolinger, published by McGraw Hill in 2002.

[tymen1]

Originally Posted by dank

Hi Tymen,
Glad to see you back and hope your doing better...I am a total newbie and still in the study phase of FOREX...I looked at various systems and finally have settled on your method as it seems to make the most sense for my particular situation.

I have been setting my various trading rules and there were two areas where I could use some guidance.

1. I set my stop/loss at 10% of my total account or 20pips as one money management rule. Do you think this is wise - or should I follow the method you outlined earlier? How hard and fast are your SL rules in this regards?

2. I have been jumping from chart and chart while demo'ing and still don't feel comfortable with a timeframe for my main chart. Can you or someone knowledgable give further guidance on the main chart time frame with a rationale for why you use a 1hr or 25min, etc timeframe?

Looking forward to more trades and charts...thanks so much...

Congratulations, Dank, on your choice of candlesticks as your trading method.

I know you will never look back - especially once you start making pips ie money while those indicator traders just keep on losing it.

Q1) At the moment we have no hard and fast stop loss rules except that you should start by placing your stop loss at about 3 pips above or below the extreme point in the candlestick pattern.
eg in the evening star, you would place your SL 3 pips above the "star".

You should set you number of lots traded so that should you lose the trade, then you would lose at most, about 2% of your total trading funds in the bank. This is standard universal trading wisdom that is used in the share market, futures, forex or whatever you may be trading.

If your SL causes you to lose 10% of your total trading funds in one hit, that is far too much.
Re-read the relevant Babypips school section on this subject again!!!

Now we have yet to discuss the matter of risk/reward ratio on this forum.

Q2) Not comfortable with a timeframe eh. Thats why I have 9 time frames from 20 mins to 1 hour. This gives me more patterns - a bit like a net for catching fish. More fish in a net than just with a line and hook.

As I have said earlier, you can choose any time frame you wish, be it 20 mins (don't go lower), 1 hour, 4 hour or daily - its up to you.

The lower time frames show patterns up more frequently (this should be obvious), and, therefore, there is more action - a bit like a James Bond movie.
You make less pips on the lower time frames but at least you are making them and not waiting for them.

I see 2/3/4 patterns in any morning 6 hour period. That makes for trading, not watching and waiting.

You also develop your skills better by trading more frequently. (more practise).

Hope this helps.

[tymen1]

Right now, I am very happy that others are now posting as well. For a while, I really felt that I was running a monologue.

However, there are still more things I would like to present such as trading with dark cloud covers, piercing patterns etc, as well as an improvement to the KC entry method !!

I would be interested in hearing from other posters whether other broker charting programs also allow the viewing of multiple charts.

[KENNETH LEE]

Tymen ; I have Oanda and GFT accounts they both have as many charts per screen as you would like.
GFT can only be opened on 1 computor at a time. If you try to open your account on another machine it closes previous one. You could open a live account and demo and have 2 machines running to help in ALL these charts we want to look at. I LOVE GFT's charts. Don't care for there entry system.
Oanda you can open your account on multi machines at the same time . So if your working moving around you could monitor things from different rooms. I really like there order entry system It allows you to setup your parameters. Such as position size in $ amount or pips your targets in pips or $ amount. then just one click entries and everything is set already every time.

[cbarnett808]

Risk/ reward would be a wonderful next topic.

This is the only major shortcoming I see in trading candlesticks. I have a hard time scalping for 10 pips when my stop loss (the high point of the formation) could be 20 or more pips away. In fact, I have had great success trading candlestick formations alone the last week or so, but I'm actually at a net loss due to big stop losses (Yes, I realize big risk/ small reward breaks a prima facia rule of trading- I like breaking rules though, and sometimes it pays).

The other night, I set up Metatrader at either 30 min or 1 hr (sorry, can't remember which) and counted the number of successful trades to number of trades overall since March 1. The ratio was something like 27:34, a truly amazing #! The caveat here is that I counted all candlestick formations, not just ones on the Bollinger Band. I know what you're thinking, but when I subtracted the ones that weren't on the band, the ratio didn't significantly change. What this tells me is that the candlesticks are effective on their own. Don't get me wrong, I still love this system as the Bollinger Bands add statistical credibility to the fact that a reversal is likely. Picking reversals is still risky, however, and it seemed like formations that happened mid-trend were almost as good. Sorry to stray off topic some here- there are many things I love about this system, and I plan to add them to this forum as we go on.

The point of this post is this:

We have a very solid system here- better than any i've seen yet. We might need some solid money management that is somewhat specific to this system however, and here is why: If we assume the 27:7 win-loss ratio (which seems unrealistically high) and we gain 10 pips from each win and lose 20 pips from each loss, we don't even clear 100 pips for six weeks after we pay the spreads. True enough, we haven't lost any money, but we certainly haven't expanded it much either. Plus, I should add that many of the 27 wins were just barely 10 pip gains (another achilles heel), and that ratio is certain to decrease sooner or later.

If we can get money management straight, this system (or approach- I hate calling it a 'system'; sounds so slimy) may be as close as we get to a holy grail! I've tried other systems that have great money management rules but were mediocre otherwise. I'll try to think on this some, and see if I can come up with a solution- What do you think, Tymen?

[cbarnett808]

Oh yes, and keep the patterns coming. FXWords.com is great and all, but nothing beats seeing them in action!

As always- many thanks Tymen.

[mytwopips]

I believe tymen puts his stops 2 pips past the wick of the star on the 20min. I could be wrong, but I don't think there would be to many situations where that stop would be as many or close to 20 pips. This is with consideration that he switches to a lower time frame to vector the best entry. Hmmm... maybe he will have a better answer on this one to help you and everyone else following.

[cbarnett808]

Actually, they're pretty common. Here's one on the attached thumbnail (it's the one with the checkmark). This was the first one I could find that is right on the Bollinger Band. It worked out (as most do), but let's take a look at the numbers:

1. I'm assuming that I won't get the best possible entry, so I'm just going to take a guess that I enter somewhere between the open of that first blue candle after the doji is complete (1.5811) and the high point (1.5825). If we split the difference, which would be a pretty good entry, we would get in somewhere around 1.5818.

2. If we put our stop loss three pips above the point of the star, it would be 1.5839. That's a difference of 21 pips. If we put our stop loss three pips above the highest point of the entire formation, it would be at 1.5841, a difference of 23 pips.

Again, I'm making a lot of assumptions, but I also have to be realistic in that I will probably never get the best possible entry. As I said, this one worked out, but I've had many go against me, and we would have to successfully scalp three more setups just to get above even.

Just to be clear, I'm not criticizing this system- in fact, I love it! I'm just probing around to try to make it a true pip killer.

(sorry if the picture's fuzzy- I never took the time to learn how to post within the actual posting).

[mytwopips]

I will let the master take over on that one. He will be far more helpful than me. Still a short on that trade would have turned out rather nice.

[VulcanClassic]

Dealbook Rocks!

I gotta say the rep from GFT has been pretty helpful. She showed me a way to set up dealbook so I can watch as many pairs as I want without overloading the computer.

Right now I have a workspace with 20 different pairs in it. I keep them on the 20M timeframe just to watch movement. We'll see how that works.

On a seperate workspace I have 12 timeframes (5m to 1H like Tymen, then 4H and Daily) for one pair. Here's the beauty of it; you start by opening a quote board, open linked charts (12 for me) then apply you're templates to them. When you click on a different pair in the quote board it changes those linked charts to that pair, keeping the templates/timeframes.

I have four of these quote board/workspace arrangements, so there will always be one loaded for review while the others are loading.

Not sure if 20 will be too many to manage, if it is, I'll just scale it back.


Later . . . Yup, it's too many. Will get rid of the corrollating pairs.