THE JOY OF CANDLESTICK TRADING - Part 2

[Winner]

Hi Tymen,

I am immersing myself in intensive study to learn your strategy.

I posted this in an abbreviated form earlier, but nobody responded so I have recomposed it and addressed it directly to you.

The following is excerpted from the Final pdf on pages 15 and 16:


So essential is the correct shaping of the BB that if they are not shaped as above, then the trade will most likely be lost.
Choosing the correct shaping of the BB is just as important as choosing the correct candlestick pattern.
By doing this part of the work properly, we are working like the sniper, setting up the trade to work in our favour from the very start. We are thus working to create a high probability success trade.
Examine the following case of expanding outer Bollinger bands with candlestick patterns seated on them >>>

(I have no idea how to post the image from the pdf)


In the above case, we would like the price action to return to the centre. But the price action is walking the outer BB in a powerful trend fashion which should not be underestimated. The best our reversal patterns can do is to temporarily cause the price action to go level. After a few candles, however, the price action will most likely resume its original trend walking the bands.
Such a trade would most certainly be lost.

The only solution to such a case is shown in the diagram below >>>

(I have no idea how to post the image from the pdf)

In this case, we have not one, but two patterns following each other separated by several candles.
The first pattern causes an interruption to the walking of the BB and price action goes level. The second pattern then causes the price action to go inwards towards the centre, that is, the mid BB.
Therefore, in cases where the outer BB are expanding strongly, the trade can only be safely taken after a second pattern. Where there is mild expansion of the outer BB, the trade can be taken with one pattern but great caution needs to be exercised.

The questions that I have are:

1) My intepretation of this is that even if the BB is expanding in the opposite direction to the reversal indicated by the candle pattern, we can safely take the trade if there is a second confirming candle pattern, and the second pattern does not have to be right on the outer BB? Am I correct?
2) Do the two candle patterns have to be separated by several candles or can they follow each other immediately?


Thanks,

Winner

[Aarnog]

So, I have a couple of developing patterns that I am beginning to watch to see if they develop into anything.

The first one:


Is the GBP/AUD on a 30 minute chard, looking like it might develop into a fairly nice evening star/evening doji star. The candle itself has gone red, and is looking like it's going to continue; but we'll see how it is in 20 minutes or so.

I don't like the direction the mid BB has taken; it's beginning to rise a little too sharply for my tastes, so that's keeping me from being 100% sure about entering this trade; I think it will depend on how solid the pattern is when the candle closes. Also, the third candle has a medium-sized top wick, which is also making me cautious about the pattern. Maybe this one will be passed up.

The second one:


Is a Morning Doji Star on the CAD/JPY 1 hour chard.

Again, I don't like the direction the mid BB is facing, but it's not TOO steep, so again, I may take this trade - especially because the pattern is quite strong - there is currently no wick at all on the third candle! I'll definitely have to be cautious with this trade if I take it, though.

[amosfella]

Wouldn't trade either of them as reversals... Might trade the second as a short continuation pattern......

[Aarnog]

It's okay, I didn't trade them either - although I probably would have gone for the GBP/AUD one. I actually went upstairs to grab an iced tea and some leftover halloween candy. Got distracted, and just got back downstairs about 5 minutes ago; when I was a bit too late. I came back to the following though:



The 5 minute chart I quickly pointed out the entries/exits I would have tried to get, were I actually in front of my computer, and the 30 minute chart shows what greeted me when I sat back down.

*Note - the Unrealized loss is from me testing a stop loss, limit buy, etc on the chart - I had to figure out how exactly they worked sometime, and I accidentally set a buy order a little to close to the price action. Thankfully, it's a demo account.

Anyway, comments/criticisms on my choices will be MUCH appreciated.

Things I noticed that weren't good in the charts:

The wick on the near-doji was massive in both directions; not short on the bottom as it says it's supposed to be in the PDF (I was using the pattern from a website which didn't specify the lengths of the wicks, now I know for next time).

There was a somewhat lengthy wick on the top of the third candle, instead of a very short wick; but my logic is that the length of the candle's body made up for it.

As I said before, the mid BB was pointing upwards, although not too terribly steeply.

Things that I noticed that I think were good:
On the 30 min chart, there was a 4-candle uptrend before the pattern

The candles were beyond the top BB; indicating they were likely to trend back to the middle.

On the 5 min chart:
The STARC bands were dropping steeply in my favor; and the mid BB was also going in my favor

Overall:
I think I may have been impatient to get my first trade in; yesterday was such a slow day that I couldn't really find anything to trade at the times I was available, so I may have been more willing to bend the rules a little bit today. I know that will go away after I have a few trades under my belt though, and if it doesn't, it'll DEFINITELY go away after I take a few losses because of it.

[kockneerebel]

hi Aarnog
Do not be tempted to bend the rules they are there to make you money
the chart you posted has broken the rules, can you see how ?
best regards

[Aarnog]

Yes - the finishing candle of the pattern was touching the mid BB. Bad news bears for sure!

Again, I think I can chalk up the things I overlooked to my excitement to get started.

I'll try to get some more (TOTALLY rule-abiding) trades posted tomorrow and/or Friday, depending on how my studying goes for my coming Midterm. I should have a good deal of time to get some trades in though.

[kockneerebel]

well done
trading forex is not a race , the market will still be there tommorrow. patience and discipline will help preserve your account. when things are slow use the time to educate your self rather than trying to trade in unfavorable conditions

best regards

[comfblue]

yeah, patience. actually it's really hard sometimes. i'm about a month and a half in foerx (demo of course), until the last weekend i was really confused. trying indicators but non really make sense, non gave me confidence. but then in the last weekend i found this thread, and now i feel much better...like i found my way. but in the past few days just no patterns with right conditions
and i must say that i bent some of the rules 3-4 times one time i lost 30 pips and the rest i somehow hardly grabbed some pips.

but i'm not giving up and I really wish all of us better days.


Ilan

[kockneerebel]

Hi comfblue
It is important to not bend the rules. Tymens method is excellent and has been tried and tested extensively. If I may suggest, in quiet times , re read the pdf and also look to other education in forex. imho It is most important to start with good habits and stay with them. The temptation to bend rules when using demo account must be avoided as this will have a massive impact when you go live and you will lose your account . There is much good advice on this thread also some BS. Ultimately you are in control of your destiny, what works for one trader may not work for another so take your time and find what works for you but avoid being a system gypsy
best regards

[comfblue]

Hi,

so finally i had a trade which was not bad. i don't say good coz, i saw it a bit late but any way i did it. and i got some pips.

u can see in the image both charts 20m on the right and 5m on the left.

i didn't mark the exit coz it was just 2 minutes after the 2nd entry and in the same candle. I exited coz it went a bit above the upper BB, but i didn't think its allot until it started retracing so i exited.

kindly your comments.

regards
ilan