THE JOY OF CANDLESTICK TRADING - a Learning Experience

[Piphacker]

Originally Posted by tymen1

To Piphacker :

Thank you for your compliments.
I trust you will do well on the higher time frames – some of our veteran traders are using those time frames as well.

Just a little tip for your posting.

Try going one size up in your typing and switching off the “bold” tab. Bold print is used only for emphasis.

All the best!

Your observation is preety fast ... I remember when i started My Journal than i Miss-spelled the word ''Journal'' your post was the first post by any member in my journal with correction lol ...PipHacker's Trading Jounral!!!
Anyway's Well most of my trades on higher timeframes are based on candlestick pattren with couple of commen indicator's... Reversal candles works on anytime frame but on higher Tf's like 4-Hour & more got the strong impact...Also we can enter , exit through these reversal candles also... I,d also like to post some of the screenshot's of my trades based on reversal candle's here in your wounderfull Thread... Coz I think this is the right place...Maybe it help this pattren lover's...Thank's Again
PipHacker!!

[greywolf238]

Piphacker

I would like to see some charts of your 4 hour signals, that's the time frame i think i'm going to stick with, i haven't gone live yet but when i do i will probably stick with the 4 hour time frame.

[tymen1]

To Piphacker and Greywolf238 :

Go ahead!

A 4 hour chart will give you –
a) less patterns (longer waiting)
b) greater reliability
c) hopefully more pips per trade.

The right KC chart for a 4 hour timeframe is about 50 mins. If you cannot get that then use a 1 hour timeframe. The KC chart should help you get better entries on the evening star.
I do note that I have not yet shown how to use the KC chart on other patterns but that is coming.

[tymen1]

Now I am going to make a correction to the drawings showing how to find the top of a retracement/pullback.

Diagram first then notes >>>


By tymen1 at 2008-05-16

There are 3 diagrams in this one. The Bollinger bands are shown again in blue and the Keltner/Starc bands are shown in green.

The 1st drawing shows the Keltner/Starc bands going up. In this case they will always hover in the upper section of the BB and the price action in the upper section of the Keltner/Starc bands!
The highest (retrace) candle (red or green) will tag/penetrate the upper Bollinger, upper Keltner and upper Starc bands.

The 2nd drawing shows the Keltner/Starc bands going down. In this case they will always hover in the lower section of the BB and the price action in the lower section of the Keltner/Starc bands!
The highest (retrace) candle (red or green) will tag/penetrate the middle Bollinger, middle Keltner and middle Starc bands.

The 3rd drawing shows the Keltner/Starc bands going down.
The highest (retrace) candle (red or green) may also tag/penetrate the middle Bollinger, upper Keltner and upper Starc bands.

Note that when the Keltner/Starc bands are going down, the retrace candle always comes near/tags/penetrates the middle Bollinger band.

[tymen1]

Now I am going to show a trade making use of 2 trade types, pips first and retrace first.

In it you will see how we detect retraces. Notes below chart >>>


By tymen1 at 2008-05-09

In this 35 minute chart we have an evening star pattern with 4 candles, the last one being the red candle. It is not a splendid pattern but will do for the purposes of illustration.

The price action going down is wonderful, in fact we wonder where our 2 trade types fit in.
Looking at the chart, it is obviously a pips first trade type.

The red dashed line at the top is the stop loss in its initial placement – high risk because the red candle of the pattern is short and the BB is going steadily up.
Remember, at this point, we do not know that the trade is going to turn out as good as it did!

We now turn to the KC chart.

[tymen1]

The KC chart >>>


By tymen1 at 2008-05-09

The chart looks a little messy but really is very simple. A MACD is at the bottom. The BB are in blue. The Keltner (edge of grey) and Starc bands (green) are both shown and that is why it looks a little messy. In future I think I will show only one set for clarity.

The middle Keltner band is in yellow.

The opening is at 27 and, at this point the MACD and BB are going in opposite directions, hence the resultant level. See the yellow oval for clarity.

This means that our best short entry will be on the middle Keltner band.
The opening is at 27 is below the middle Keltner so we wait. Sure enough, the price action goes there and we enter at 29 !! That is 2 pips better than open.

The next post shows a fuller picture of the KC chart so that we can go thro the steps of the trade.

[tymen1]

First a larger view of the KC chart >>>


By tymen1 at 2008-05-09

After the short entry with 1 amount at point A, we note that the price action goes down making it a “pips first” trade. We have set an initial target of 10 pips and this is reached at B where we close the trade. The stop loss is also shut down.

But the price action still goes down further, even to point C. We miss out on that – the trade types are not perfected yet and more revisions are to come. Being a typical school teacher, I have programmed all this stuff in advance!!

We sit back, relax and wait.

The price action now retraces to point D where a candle crosses the upper Starc band and comes 1 pip short of the middle Bollinger band.
That is signal enough for a retracement and we re-enter short with 2 amounts, wait for the price to go down sufficiently, then place our new stop loss a “spread distance” (eg 3 pips) below our short entry.

If the price action now backfires, it will hit our new stop loss and we will get out with no loss/no profit.

We observe diligently. Note that we are Micro Managing our trade. This is necessary with these trades – there is no setting stop loss (SL) and take profit (TP) and just walking away to see the result later.
No, we must watch what we are doing – but we are getting paid for it!

We have set a much larger target profit (say 20 pips) at E. When we reach that point we exit with only 1 amount with the other remaining in the trade.

We really watch this last amount to see how far down we dare to go. At F then, we exit with a profit of possibly 40 or more pips.



Total pips......1x +10, 1x +20, 1x +40 = 70 pips. Wow!!
Risk = 10 pips

Risk/Reward ratio = 1:7...............excellent!!



Summary
This is a lovely trade and we can see how to apply the principle of the 2 trade types and the setting of the new stop loss to prevent any loss occurring.

Further examples will follow showing :
1) How the 2 trade types operate
2) Finding the retrace/pullback points
3) Resetting the stop loss to give riskless trades.

[trav72]

Thanks for continuing all this brilliant stuff, i really am enjoying it.
I am now wondering about the starc bands. As i had not been using them, as they were similar to the KC and i had not seen there purpose, however, i am seeing it is now time to add them to the smaller time frame chart in helping identify those elusive but profitable retracement peaks.
Also my next question is, where we look for our ideal entry using the KC method, and we have till the close of the next candle on the main chart(ie 35minutes) to do this, ie 3.5 candles(35minutes)on the KC, 10 minute chart.
Now, once we have entered the trade, how long can we stay on the 10/5 minute chart. I see in your example that the retracement point D occurs about 60 minutes after the opening of the trade, and we complete at approx 20 candles after open. (200minutes)
Also, If say we were to close at B and the price continues down, or doesnt retrace to a point that it crosses the BB or starc band is this trade finished and we move to next trade, satisified with our profit at B, or can we re-enter. My answer is i will ....ummmmm.... re-enter?......not enter?.....is this right?......
When does a retracement become a change in direction?
Maybe i am asking for some rules to live by, but the more i am reading the more i am seeing and understanding that i have to be flexible and that it is a whole complex system that requires on going assesment and adjustment of risk and reward depending on many factors that you have taught.
The more i am learning here the more i am understanding that trading FX is very dynamic and it is a matter of learning, developing and practising all the skills to make the best decision at the time, and the more knowledge you have the better your chances of success.

I am looking forward to your all your teachings,but epecially of those other patterns you mentioned and also of the methods in goin long? can these be as rewarding as the evening star.
Thank you
Travis

[trav72]

hi tymen, hope you had a good weekend. At present i cant get my mind of candlesticks, they are starting to possess me, but that is ok....i think.
I was wondering, (I hope that i am not getting ahead of myself here, and i am still working my 7am-5pm job), but i read that you use 4 patterns with great success. I understand the evening star, i was wondering (again), if you could reveal your 3 others, i sort of could guess maybe the dark cloud, engulfing, and morning star, but i wouldnt be confident if i didnt hear it from you, and see it too. I know that link you gave is great on japanese candlesticks, but i was wondering (i do a lot of wondering) if you could just place your four patterns on one page so i could implant the images on my mind, and apply the principles you have already taught us to these patterns as well.
I saw you did it for the evening star, which was great. It is often hard to go back and find the page in the thread which is pretty big.
I now have my deal book set up like yours, through kinetic...(the guy there said your a legend, true story)... and i must admit that it is so much clearer to see the good patterns.
I also like that 1:7 risk;reward ratio, shown in your recent post. Its fantastic. Is the risk reward ratio the same for every trade, and basically applied at the start of the trade if we use the method/principle you illustrated. I am bit unsure. I can see it looks fantastic, but say we take pips first with one lot (10 pips and exit), and then the price retraces and we add another 2 lots, and just say now we get stopped out and the trade ends, then maybe we have lost 20 pips (overall -10). Would the risk/reward ratio still be as it was when we started. Or is there a risk/rewrd ratio for the start of the trade in our mind, and then a risk/reward ratio, 'assessment' for outcome, or is it always the same regardless of what happens?
Appreciate all your stuff Tymen. Hopefully i can get the pips rolling in my direction. I just wish i had done this study before i began any trading.... atleast now i can see the way forward
Thanks again
Sorry for being long winded....bit boring all in text, your methods of teaching are great. Should make this thread into a book!

[trav72]

i'm not going to trade until tymen gets of number 666 posts