The Most Important Post In The Joy Of Candlestick Trading

Beginner Questions
1

As my thread, The Joy of Candlestick Trading is a teaching thread, there has been a development of a strategy to win.
This strategy has culminated in the producing of 4 levels of trading.

The strategies are very simple, yet very powerful.

There is a level for everyone.

The most important post is #1393 on page 140.

Or you can go straight to the attachment which contains…

THE ULTIMATE CANDLESTICK TRADING METHOD - 4 Levels

This post contains everything of importance that was discussed in the thread and is everything that you will ever need to trade successfully.

This post is a complete textbook in itself.

THE ULTIMATE CANDLESTICK TRADING METHOD - 4 levels.pdf (562 KB)

2

I add the following material for those who are having difficulty using the Bollinger bands for trading with candlesticks.

[B]THE CORRECT USE OF THE BOLLINGER BANDS[/B]

[B]I will now explain the correct use of the Bollinger bands.[/B]

We only trade the candlestick patterns when they are placed on the upper or lower Bollinger bands.

These bands mark an extreme point, and prices at these extremes are more likely to return to the centre, that is the mid Bollinger band.

By choosing a shorting candlestick pattern on the upper Bollinger we combine 2 powerful signals, that of the pattern and the extreme of the price.
The same is true a long candlestick pattern on the lower Bollinger.

When prices are at the extreme of the Bollinger bands, the price action is much more likely to go only one way, that is, into the centre.
We know that when a candlestick pattern appears, it indicates that price action is about to go in one particular direction.

By now observing the appropriate candlestick patterns on the Bollinger bands, we greatly amplify the probability of the price action going in the direction dictated by the patterns.

[B]Examine the following diagram which shows the Bollinger bands (blue lines) expanding [/B] >>>


By tymen4 at 2008-11-05

There are 2 candlestick patterns on the drawing � red is a shorting pattern and green is a pattern for going long.

The green and red lines show the relevant price action.
Note how the patterns break the trend of the price action only slightly.
A few candles later and the price action resumes it original direction.

This diagram then, shows incorrect use of the Bollinger bands in determining a trade.

[B]Here is now what happens when 2 short or long patterns appear in sequence [/B]>>>


By tymen4 at 2008-11-08

After the second pattern, the price action goes the correct way the pattern dictates.

Therefore, if you see a second pattern on an expanding Bollinger band, you can expect a successful trade after this pattern.
But under no circumstances can you expect a successful trade on an expanding Bollinger band with the appearance of only one pattern.

3

[B]We now look at the correct use of the bands when they are expanding :[/B]

Examine the following diagram >>>


By tymen4 at 2008-11-08

When the BB are expanding we choose a long pattern on the upper BB and a short pattern on the lower BB.

In this way we are trading with the trend and hence can expect success.

[B]
We now look at the bands when they are contracting [/B] >>>


By tymen4 at 2008-11-08

When the bands are contracting, the price action is being returned back to the centre, that is, the mid Bollinger band.

At this point then, a shorting pattern is used on the upper and long pattern on the lower BB respectively.
This ensures that you are trading with the trend.

Examples of shorting patterns are dark cloud cover, short engulfing, evening star.
Examples of long patterns are piercing pattern, long engulfing and morning doji star.

[U]In summary :[/U]

For expanding Bollinger bands, use patterns that direct the price away form the centre.
For contracting Bollinger bands, use patterns that direct the price towards the centre.
Also��
For level Bollinger bands, check which way the bands are likely to go but generally use patterns that direct the price towards the centre.
Do not trade patterns when there is little width to the Bollinger bands and there is no sign of them expanding.

4

I am very grateful for the time and effort you put into this forum. Thank you. My very 1st exposure to demo trading involved Boll. Bands and of course I didn’t have any idea of what I was doing. Earlier this past summer I was exposed to Rob Booker’s “Booker Bands”, a similar strategy, but didn’t want to spend the money for the cd’s. Reading the above post has renewed my interest and I am going to give it a go again, who knows I may become successful this time and you would be the reason - many thanks again, d.

Can you suggest a B.B. setting for 1H trading? My default on demo is 14,2.