THE JOY OF CANDLESTICK TRADING - a Learning Experience

[tymen1]

Here is our first long engulfing pattern.

Inspect it carefully. You will see that it meets all of our requirements.


By tymen1 at 2008-07-15

[jerryd_99]

Hi Tymen, and welcome back. I have been awaiting this next series with keen anticipation. I am wondering about the "trumpeting" appearance of the Bollinger Bands. As I seem to see trumpets everywhere I look, are there degrees of trumpeting that are acceptable? Or to put it another way, what constitutes a trumpet versus a divergence? Obviously I am really new to this Forex world so I hope my questions are not too basic.

Jerry

[ericoco]

does it mean that we don't consider the direction o the mid BBand the trumpet appearance?

[tymen1]

Originally Posted by jerryd_99

Hi Tymen, and welcome back. I have been awaiting this next series with keen anticipation. I am wondering about the "trumpeting" appearance of the Bollinger Bands. As I seem to see trumpets everywhere I look, are there degrees of trumpeting that are acceptable? Or to put it another way, what constitutes a trumpet versus a divergence? Obviously I am really new to this Forex world so I hope my questions are not too basic.

Jerry

You question is fine Jerryd_99.

Welcome to this thread and thank you for the kind compliment.

The "trumpet" is an expression I have coined to describe the rapid opening of the Bollinger bands after a period of compression.
The ususal term here is "breakout"

The price action will walk either the lower or upper Bollinger band, depending on the direction of the price.

It is dangerous at this time to trade in the opposite direction. If you do, then your stop loss has a very high probability of being hit.

Now if we see a candlestick pattern along this "trumpet", and this pattern tells us to trade in the opposing direction to the price, then we must treat such a potential trade with great caution.
There are no degrees of trumpets here - trading in the opposite direction is always fraught with danger.

The best we can expect is for price action to go level for a period, that is neither up nor down.
A price resumption in the original direction after a period of time is very likely.

A second pattern is really required to change the direction of the price action completely in the above case.

Being familiar with this senario gives you a powerful advantage over other traders.
That is why it is good to be aware of it.

[Jimmy Jones]

I was just noticing that the last day there has been no quality patterns to trade on (evening star or engulfing). How many patterns are you guys seeing per day on average? Maybe I am missing them because I am looking too hard...

[Ray_1]

Hi tymen1,

For an engulfing pattern, if both candles are equal in height, do you still consider it as an engulfing pattern?

[Jimmy Jones]

Edit: I figured it out...

[tymen1]

Answers to questions :

Originally Posted by ericoco

does it mean that we don't consider the direction o the mid BBand the trumpet appearance?

Yes we do consider the mid band. We take the direction and its steepness into a subjective account when considering a risky trade.


Jimmy Jones

I was just noticing that the last day there has been no quality patterns to trade on (evening star or engulfing).

You were correct..........There were no quality patterns visible to trade.

However, I then noticed on the 25m chart where the engulfing pattern had formed that the price action was already up past the middle BB, probably halfway between mid and top. I decided to leave this trade alone because...................

Good move!!

The middle Bollinger band is the region where all price action gravitates to.
So, therefore, if you see the price action going this far and have not yet entered, then leave it.
The best way with such a trade is to enter at the proper time and build up some pips already. Then, using 2 amounts, you can close 1 amount when reaching the middle BB and let the 2nd amount run its course with a stop loss readjusted to break even.

When you are in a trade, we always toggle back and forth between the 5 minute chart and the main chart so as to monitor everything.
These are short term trades so we can do this.

The poster Daedalus has said in one of his posts on this forum last year that we should not "micro-manage" our trades but rather set our stop loss and take profit and leave the trade alone after that.

I agree with this as long as we are handling a straight forward indicator based trade.
But in our trades, where exiting and re-entry is a staple diet in the Ultimate Candlestick Trading Method, this procedure of leaving our trades alone is simply not possible.
Anyway, our trades are short lived so it is fun to see the profit come in.

Continue to watch the examples I will post for more insight.


Ray_1

For an engulfing pattern, if both candles are equal in height, do you still consider it as an engulfing pattern?

Definitely not!!

The very word "engulfing" describes something being completely surrounded.
The bigger the difference in candle sizes, the stronger the pattern.
Therefore, a very small first candle is good.
The second candle is definitely larger than the first.

There is, however, a limit.
If the second candle stretches to the middle Bollinger band, where the price action is supposed to gravitate to, then we have to cancel the pattern since we consider no more trading room left.
This may not be the case at all but we are not here to take gambling risks.

[tymen1]

Here is a second example of a long engulfing pattern.

Inspect it carefully.

Now, there is something very wrong here so that you would not take this trade.
Can you spot what the problem is?
Please post back!

It is very important that you can immediately spot the problem!!


By tymen1 at 2008-07-16

[Jimmy Jones]

Sorry for editing my last post, I felt like maybe it was a stupid question with an obvious answer, but it looks like you were replying to it when I removed it!

Thanks for the clarification on the middle BB, I have seen a few patterns in the last few days where the start of the pattern originated from either the other side of the mid bb or very close to it, so I left them alone but not really understanding why.

As far as riding the retraces on the starc, I was misunderstanding you. I thought you had mentioned entering at one touch of the outside starc and then exiting once it touched the opposite outside band. However it seems there is less risk involved with what you just posted; doing a 2 amount trade at the correct starc entry point of the retrace, closing one amount once the target has been hit, and then letting the final amount ride until either the next strong reversal pattern, or no more than 7 sessions away from the first pattern. Is that a correct assumption?

Sorry for the long posts and questions, I am really trying to understand this system so I am not gambling, like you mentioned in the previous post.

In regards to your latest post, the first thing that struck me was that pattern occurs too far from the bottom BB. And then I thought that even if it was close to the lower bb, it is too close to the mid bb...