THE JOY OF CANDLESTICK TRADING - a Learning Experience

[tymen1]

This is the final chart of the series.

It is the main chart again giving a full perspective >>>


By tymen1 at 2008-06-28

I will conclude the pips scores by giving exits at the bottom of candle 8 which is 108.84 (not labelled). Since this is a 25 minute chart, one candle here includes 5 candles of a 5 minute chart.

That should be fair.

* * * * * * *

There are some very important conclusions to be made here.

1) As you can see, this is a typical example where the evening star broke the back of a rising trend but did not reverse it. You could suspect that this was coming because the width of the BB had not changed and the middle BB was going up relentlessly.

2) The price action went horizontal and, therefore, attempts to make a big profit out of this trade were fraught with danger unless another pattern appeared, which did not happen.

3) A small profit is, therefore, good.

4) A loss on this trade should not have happened.

5) As a rule, always put your stop loss at 3 pips above the star in an evening star. There should then, be no fear of a retrace going thro the stop loss. Do not expect this to happen and do not trade that way.

6) Trading beyond about 7 candles on the main chart is not good. The further away you get from the pattern, the less significant the pattern. At some point it has no meaning and to procede beyond that point is more like gambling than trading. The price action could easilly have gone up again at any time. Therefore, trades with this senario need to be quick.

7) Trading the retraces and exits on a 5 minute (or short term) chart,......here are the repeats.

With the Starc going up :
Look for a retrace to touch or go thro the upper Starc.
You can wait 3 candles to see if the price walks the upper Starc to get as close to the top of the retrace as possible.
Exit if the price action is close to the lower Starc. No band walking.


With the Starc going level :
Look for a retrace to touch or come close to the upper Starc.
Look for an exit to touch or go thro the lower Starc.
No walking bands here.


With the Starc going down :
Look for a retrace to touch or come close to the upper Starc. No band walking.
Look for an exit to touch or go thro the lower Starc.
You can wait 3 candles to see if the price walks the lower Starc to get as best an exit as possible.

Finding the retraces and exits are the opposite procedures with the Starc going up or down.

So procedure for finding retrace for Starc up is the same as finding exit for Starc down.
Procedure for finding retrace for Starc down is the same as finding exit for Starc up.


This is heavy theory.
I will post a picture of this to simplify this soon.

It applies to all patterns.

[tymen1]

Now to finalize all the pip scores.

I have deliberately chosen the most difficult of all trades you are likely to get. If you can make a profit on this one, then you can win anything.

I will exit everyone who needs to be exited at the low of candle 8 (not labelled) of the main chart.

The price here is 107.84


VulcanClassic -

I want to see what the next candle does.

OK, so exit at low of candle 8.
107.98(av entry)-107.84 (low of candle 8) = 14 pips.
With 2 amounts this is 28-spread (1) = Grand Total = 27 pips.

Congratulations!!
Thats a very good profit for a most difficult trade.
However, I have exited you at candle 8. This is very late and it is not recommended to stay this long in a trade of this type.




Trav72 - exited both amounts at 107.94 earlier on.(not cheating!) Therefore......

107.98(av entry)-107.94 = 4 pips.
With 2 amounts this is 8-spread (1) = 7 pips.
With 2 amounts re-entry at 108.04........
One amount exit at 107.90.......that is 108.04-107.90 is 14-spread(1) = 13 pips.
One amount exit at 107.84.......that is 108.04-107.84 is 20-spread(1) = 19 pips.
If we total this we get 7+13+19, = Grand Total = 39 pips.

Congratulations!!
Thats a very good profit for a most difficult trade.
However, I have exited you at candle 8. This is very late and it is not recommended to stay this long in a trade of this type.





Kenneth Lee -

I would have been out way before 108.04 most likely around one of the 1,2,3 numbers.

I will let you break even.
107.97(av entry)-107.97 = 0 pips.
With 2 amounts, this is 0-spread(1) = Grand Total = -1 pip .

Congratulations!
You have been very astute so as to prevent any losses on a most difficult trade.





Neboxian -

if the next candle opens red, please add 1 more amount

(2+1) = 3 amounts

Candle DID open red so...........
107.92 initial entry + 108.03 +108.03 (generous) all divided by 3 = 107.99 as new average entry.

I'll wait for the price to walk down the lower bands 2 0r 3 more candles

OK, so exit at low of candle 8.
107.99-107.84 = 15 pips.
With 3 amounts this is 45-spread (1) = Grand Total = 44 pips.

Congratulations!!
Thats a very good profit for a most difficult trade.
However, I have exited you at candle 8. This is very late and it is not recommended to stay this long in a trade of this type.
Further, you have entered 3 amounts, not 2. By doing this, you are risking a very large loss if the trade should go against you!





Ericoco -

i would not have exited the trade in stage 8. and i would not exit now since the middle BB and the starc bands are heading down .will wait for the price to walk the bands for 2/3 candles before i exit.

OK, taking up your trade from the beginning...........

averaged....(107.92+108.03)/2 = 107.97
A profit will start to be made when the price action goes below 107.97
Final exit 2 amounts at low of candle 8.
107.97-107.84 = 13 pips
With 2 amounts this is 26-spread (1) = Grand Total = 25 pips.

Congratulations!!
Thats a very good profit for a most difficult trade.
However, I have exited you at candle 8. This is very late and it is not recommended to stay this long in a trade of this type.




The others, Sinn1, Keitsuke and Ray 1, I cannot do in all fairness since they have not posted again.

BrianSNJ - temporary delay due to broker changeover.

[tymen1]

My Own Trade of this Exercise.

I traded this exercise myself so that I was familiar with the various decision points.

I must stress also that I did not trade beyond candle 7 on the final main chart.
I believe that trading too far from the evening star pattern is dangerous, especially so in this case where the price action went merely level.

I chose to post this exercise because it was difficult - in fact, as difficult as they come. To make any money on this one means you are doing well and can handle any trade to come.



Stage 1 - entry.
I entered using the KC chart method like everyone else and got the same entry as everyone, namely 107.92


Stage 5 - first retrace.
The candles had walked the upper band very weakly and by now I was in, not with the best entry of 108.04, but rather 108.03
My average entry was, therfore, 107.97


Stage 7 - first potential exit.
A potential exit at 107.94 was offered.
This was a contentious point. Nobody wanted to exit here because there was only a 3/4 pip gain in it.
Kenneth Lee ask me why I got out.

I knew, (and readers should have known it too) that the price action after this pattern would most likely go level, not down. As such, it is a high risk trade, with little profit potential, and could, at any time, just go up again.

Knowing this, and seeing that the Starc band was level, I decided to exit once the price came near the lower Starc band. It did, and I exited 2 amounts at 107.94

Now 107.97(av entry)- 107.94 = 3 pips
With 2 amounts, this is 6-spread(1) = 5 pips !!
Anyhow............!!



Stage 8 - 2nd retrace.
I got a winner here and entered 2 amounts short at the top - 108.04
You see the Starc was going level and, therfore, it was reasonable to assume that this green candle, which was so close to the upper Starc, was near a retrace top, if not the top itself.



Stage 9 - 2nd potential exit.
This was a total give-away exit!!
The Starc was level, meaning that there is no waiting to walk the lower Starc for an exit.
The price had gone way thro the lower Starc so exit for 2 amounts it was!!

To exit only 1 amount here would mean gambling with the future of the level price action and that is simply not on.
So now 108.04-107.90 = 14 pips.
With 2 amounts, this is 28-spread(1) = 27 pips.

This concluded the trade for me and my total is 5+27 = Grand Total = 32 pips.
Trade time = one and a half hours.
At 1 standard lot ....= $320. That is $213 per hour.


Had I continued to low of candle 8 then my profit would have been.........
108.04-107.84 = 20 pips.
With 2 amounts, this is 40-spread(1) = 39 pips.
39+5 = Grand Total = 44 pips with 2 amounts.



My risk/reward ratio

risk.........entry to stop loss........108.11-107.92 = 19 pips.
reward = 32 pips.

Therefore.......risk/reward = 19:32 = 1:1.7
An extremely favourable figure for such a risky trade!!

[tymen1]

My next post will bring what I have promised all along - the new ultimate trading method for all the candlestick patterns.

This post will come with picture and complete analysis.

After that, a helpful post showing the Starc band with retraces and exits in pictures.........easier to understand and remember.

Then we will start on that subject that has been pending for so long...........

other candlestick patterns!!

First one, the engulfing pattern - going long.

[VulcanClassic]

Awesome,

I can't wait.

[KENNETH LEE]

I really must go back and reread the thread and make some more notes.

Thanks for all the lessons Tymen.

I need to do some more work on the 5 minute information , This should give me a greater success rate. As I generally just stay on the upper time frame charts.

I have taken information from this thread and intergarted into other strategies. I have had success with.

The best idea being alot of traders are looking at the same reversal patterns , But waiting on indicators, and then trying for greater pip movement . So if I go for less with greater value , I am in and out before some are even in and have tighter stops. Which is good for me personally.

It is what I have adopted within my trading. It isn't the pip count. It is the account ballance that buys groceries, and less pips equal less risk, on any strategy.

Almost every thing you read is greed ( wanting more pips) is a account killer, Be happy with a moderate amount.

But in all honesty,I am begining to feel adapting this entire sysytem as my main trading strategy would be a plus.

So in closing thanks for all the great teachings,and I await the next installment with eagerness. Ken

[tymen1]

Originally Posted by KENNETH LEE

I really must go back and reread the thread and make some more notes.

Thanks for all the lessons Tymen
....................................

It is what I have adopted within my trading. It isn't the pip count. It is the account ballance that buys groceries, and less pips equal less risk, on any strategy.

Almost every thing you read is greed ( wanting more pips) is a account killer, Be happy with a moderate amount.

But in all honesty,I am begining to feel adapting this entire sysytem as my main trading strategy would be a plus.

So in closing thanks for all the great teachings,and I await the next installment with eagerness. Ken

Good for you Kenneth!!

Go for it!!

You are doing very well!!

You are right about the greed and wanting a moderate amount.

Thank you for your ongoing compliments.

[tymen1]

The Ultimate Trading Method for Short Trading Candlestick Patterns.


By tymen1 at 2008-06-16


The trading exercise above, where there were several paticipants, was a natural lead in to this trading method which I now give :


I have developed this approach after much consideration.

I believe it is the ultimate method for dealing with price action when trading a candlestick pattern that dictates that you go short.

I stand to be corrected if someone can show a better approach.


This method makes use of the many retraces that appear after a short pattern.
It will also work if the price action drops like a bomb after the entry candle.

In fact, this method takes account of every senario and will deliver a profit in all circumstances if you are careful.


Multiple amount trades where you stay in the trade and exit in stages work well only if the price drops like a bomb, but if there is a sharp retrace, then there is "time out" waiting for the price to go down again.

Also, if the price action remains level, then ordinary multiple amount trading will not make a profit at all.

But the above drawing takes account of everything that can happen.

So study this drawing, I do believe it is the best of all worlds.

In the next post I shall give an analysis.

[tymen1]

Analysis of the Ultimate Short Trading Method.

This method has many advantages.

Probably the main one is the fact that it can handle any trading condition that may occur. In that way it is all-inclusive.

Now let us look at some details.......................

Looking at a retrace first......

we note that the trade is exited after 10 pips instead of running to a retrace point and then adding a 2nd amount. Why is this so?

By way of explanation, lets look at a trade done earlier in this thread - a "retrace first" trade :






Old method

In this trade, we short enter 1 amount only at 66.
2nd amount entered at retrace of 88.
Average entry = 77.

Profit will only be made when price falls below 77. (above=loss, below=profit).

When price falls and returns to price 77 (entry price)...........profit/loss at price 77 = 0.







Now lets use the Ultimate Method.

In this trade, we short enter 1 amount only at 66.
We exit after 10 pips, that is price 76. (spread included).
Profit/loss so far = -10 pips

2 amounts re-entered at retrace of 88.

Profit made immediately when price falls.

When price falls and returns to price 77 we have 88-77 = 11pips profit.
With 2 amounts this is 22 pips profit.
Now subtract the 10 pips from above.............."profit/loss so far = -10 pips"

Therefore........profit/loss at price 77 = +12 pips.







The profit/loss of +12 pips is superior to the earlier profit/loss of 0 at the same price level of price 77.


This amazing difference in the amount of profit at the same price levels shows the power of the Ultimate Trading Method.

[tymen1]

Analysis of the Ultimate Short Trading Method for Candlesticks (part 2)

To make the above post clearer, I will use another, simpler example.

Remember, we are going short.




Old method.

In this trade, we short enter 1 amount only at price of 1.
2nd amount entered at retrace of price 19.
Average entry : (19+1)/2 = 10.

Profit will only be made when price falls below 10. (above=loss, below=profit).

When price falls from 19 and returns to price 10 (entry price) .............profit/loss at price 10 = 0.




Ultimate Short Trading Method

In this trade, we short enter 1 amount only at price of 1.
We exit after 10 pips, that is, at price 11. (spread included).
Profit/loss so far = -10 pips

2 amounts re-entered at retrace of price 19.

Profit made immediately when price falls.

When price falls and returns to price 10 we have 19-10 = 9 pips profit.
With 2 amounts this is 18 pips profit.
Now subtract the 10 pips from above.............."profit/loss so far = -10 pips"

Therefore........profit/loss at price 10 = +8 pips.





As in the previous example, the profit/loss of +8 pips is superior to the earlier profit/loss of 0 at the same price level of price 10.

Again, the superiority of the Ultimate Short Trading Method is immediately evident.