THE JOY OF CANDLESTICK TRADING - a Learning Experience

[tymen1]

Have a look at the following 5 minute KC chart and study the notes below carefully. The main chart is not necessary for this investigation >>>


By tymen1 at 2008-06-07

This chart has labels that need to be explained.

The Bollinger bands are shown in the usual blue and there is a Starc band shown in grey. The middle Starc is not shown or necessary.

There are lines across the chart beginning and ending in yellow circles.
These are trades.
They are short trades - not long.

The blue filled circles are the beginning of trades.
The red filled circles mark the end of a trade where there is a loss - the trade went against us, that is, the price action went up.
The green filled circles mark the end of a trade where there has been a profit - the trade was in our favour, that is, the price action went down.

This chart shows the results of an evening star trade.

* * * * *


In the first trade of 1 amount, which was a "retrace first" there was a loss of 10 pips, then we decided to cut our losses and exit the trade.
So we have -10 pips.
The Starc band goes up and we should really wait to see 3 candles pass thro the upper Starc band.
We can then approximate the retrace point.

Near this point, we enter short with 2 amounts and exit when the price action passes thro the bottom Starc band.
Here we get 2 amounts of +10 pips = 20 pips.

The Starc band travels level. A retrace point, by definition, will now tag or come near the top of the upper Starc band.

We see such a point, enter short with 2 amounts again, and exit when the price action passes thro the bottom Starc band.(plus some of the lower wick for good measure! ).
Here we get 2 amounts of +20 pips = 40 pips.

The Starc band continues to travel level and we see another potential retrace point. We enter short with 2 amounts again, and exit when the 2nd candle passes thro the bottom Starc band.

Why the 2nd candle?
Well, the Starc is now going down steeply, and like the Bollinger bands, the price walks the lower Starc band. So we can afford to wait a little before exiting. This way we get our target of 30 pips.
Here we get 2 amounts of 30 pips = 60 pips.

The grand total of this is 110 pips. Spreads are not included in the chart, but at 3 pips per trade = 9 pips.
Then our grand total is 101 pips, but more could have been made.
In any case, this is a huge amount for such a short timeframe trade.

We are not too happy about the -10 pips in the beginning. Something will have to be done about this. Further posts will deal with this.

We are heading towards an ultimate trading method for these candlesticks regardless of the length of the timeframe.

More tomorrow!!

[sinn1]

Originally Posted by tymen1

To Sinn1 :

As I posted earlier, the risk/reward ratio in these candlestick trades is not as straightforward as in ordinary trades. In an ordinary trade you set the stoploss and takeprofit to planned levels and you can switch off your computer if you like.
Your risk/reward ratio is calculated beforehand by you, the trader.

But in these candlestick trades, the stoploss is set by the pattern and not by a planned level. Same to some degree with the takeprofit.
Hence the risk/reward ratio is only discovered after the trade is finished.

All we can do is make sure that the risk/reward is in our favour beforehand but the exact values remain unknown until the end of the trade. To accomplish this favour beforehand is the current subject in this thread.

Hi Tymen,

I have just finished reading through the WHOLE thread and didn't read your reply until a few minutes ago. Thanks for the reply and yes I understand... especially after reading your previous posts.

Thank you for the time and energy you put in to this, I am learning loads and hope to learn much much more.

After reading the whole thread everything just seems straight forward and no questions needed.

I have just setup my MT4 with the period_converter and will start demoing this candlestick strategy.

Thanks again

[tymen1]

Originally Posted by 4xStar

I actually prefer Steve Bigalow's books ...................

Another great site is litwick.com if you go to /glossary.html you can click on any link to see the candlestick pattern.

I am surprised that your main interest would be trading stocks, tymen. .................................................. ..............

Candles + Forex 4 me 4 ever

Thanks for all your patient hard work!

Thank you, 4xStar, for your continuing encouragement.

I was aware of Steve Bigalow, I am glad that you gain from his material.
Thank you also for that other website.

I find trading stocks here in Australia a lot safer, simply because they are not leveraged.
Their volatility is great too, so that I make more money on stocks than I do in forex for the same time spent.

On the other hand, leveraged instruments or CFDs such as forex do provide a more consistant income because you can trade both long and short.

I had a comprehensive discussion on this forum some time ago with Rhodytrader (John Forman) on the matter of forex versus stocktrading. I believe his views come from an American perspective whereas I am talking from an Australian perspective.
My views still stand today.

Here is the thread :

Forex vs Stocktrading

[BrianSNJ]

Hello all,
I thought I would share with you something I made for myself directly related to Tymen's System in this thread.

This is a Word .doc file flashcard template. In the template you will find the 6 Japanese Candlestick patterns Tymen has based this system on. The candlestick pictures are in color. The pictures and the definitions come directly from the FXWORDS website. All I did was condense the it down to what was absolutely necessary to know. I deserve no credit or wrath! lol

This template is fully adjustable and can be changed, converted, reduced, enlarged and printed as you desire.

I printed this out on my color printer, cut to size with scissors, the pasted these items to sturdy 3 x 5 index cards with a glue stick. TA-DAH...flash cards.

2 things are a future issue -
1 - I would wait until Tymen can download this, review it and approve it for our use.
2 - Tymen said he was going to introduce more candle patterns to us. I will add those patterns to this template and post a 'new improved' version at that time.

I hope I have given back and I hope you all benefit. Passing along 10% of your successful trades would not be a bad idea either. Just kidding.

[BrianSNJ]

TYMEN -
Relating to what you said earlier about your 'other' system that you could not figure out the exits because it would move unpredictably.

Was that because of NEWS events by any chance? I am sure you considered this, but had to double check.

I have been practicing your system and under demo there have been times when the news events moved a perfectly profitable trade the other way. I am trading 1am to 11am Eastern Standard Time to get the open of the London market and some overlapping market action to add to the trade strength. So I consult news calendar before I get into a trade to be sure I am not going to get hit. This has worked nicely for me. I am curious to know what you think.

[Ray_1]

Originally Posted by tymen1

I will now go back to material that will usher in a new trading approach.

Exercises will be included herein.

After this matter is finally settled, we can then look at other candlestick patterns. I am thinking of the engulfing pattern, but maybe readers would like something else, eg the 3 green soldiers.

In any case, a long pattern, not a short.

Lets press on.

Hi tymen1,

If you are starting on a new pattern, I will like to learn the engulfing pattern from you. It is a pattern which can go long or short. Maybe we can hear from other students and see what patterns they are interested in learning next.

[KENNETH LEE]

BrianSNJ ; Thanks for the cards ,, I use something similar but have one of those digital picture frames. I got as a gift. I setup a SD card with stuff I want to learn and have it ticking over by my computor while I trade.. This is great though to learn the patterns well. Again Thanks, Ken

[BrianSNJ]

Originally Posted by KENNETH LEE

BrianSNJ ; Thanks for the cards ,, I use something similar but have one of those digital picture frames. I got as a gift. I setup a SD card with stuff I want to learn and have it ticking over by my computor while I trade.. This is great though to learn the patterns well. Again Thanks, Ken

SWEET IDEA!!! I am going to have to steal that one Kenneth! lol

[BrianSNJ]

Originally Posted by tymen1

I will now go back to material that will usher in a new trading approach.

Exercises will be included herein.

After this matter is finally settled, we can then look at other candlestick patterns. I am thinking of the engulfing pattern, but maybe readers would like something else, eg the 3 green soldiers.

In any case, a long pattern, not a short.

Lets press on.

Personally, I have no bias. All I can base my decision on is what I have read at FXWORDS on candlesticks. In that vein, I would recommend focusing on STRONG bullish/bearish patterns only. My logic is simple - if we look for the strongest signals, hopefully we are playing the odds in our favor as much as possible.

[tymen1]

Originally Posted by BrianSNJ

TYMEN -
Relating to what you said earlier about your 'other' system that you could not figure out the exits because it would move unpredictably.

Was that because of NEWS events by any chance? I am sure you considered this, but had to double check.

I have been practicing your system and under demo there have been times when the news events moved a perfectly profitable trade the other way. I am trading 1am to 11am Eastern Standard Time to get the open of the London market and some overlapping market action to add to the trade strength. So I consult news calendar before I get into a trade to be sure I am not going to get hit. This has worked nicely for me. I am curious to know what you think.

Several answers here at once.

Re : the Keltner system -
No, it had nothing to do with news events, the exits were totally erratic, there was not logic. I tried everything, even Fibonaci to produce a consistant exit - no luck.

Firstly, if you people need flash cards, etc for you recognition skills, thats fine.
Personally, I don't need any of this, the patterns, complete with all the very fine details, are very clear in my mind.
There is an important detail missing about the engulfing pattern in that attachment. I will tell you about it when we get there.
Rapid recognition comes with practice.

News events - again, I say, no real problems - they must be going in my favour. They, of course could be the cause of the retracements.
The patterns and the news releases should really line up.
However, it is true that I do most of my trading on the sharemarket, where small price increases make big profits for me.

If something really does go wrong - well thats why we have a stop loss!

I too, thought that the engulfing pattern would be a good one to continue with.