I’m going through the school of pipsology and it all makes sense to me apart from some practical aspects seem to be missing. Maybe they are taught further along than I have reached so far but I have searched the forum and can’t find anyone having asked the same question.
So please tell me, do the japanese candlestick patterns apply to all time frames equally or should they only be used on longer time frames? Which time frames are best for getting good accurate interpretations?
Thanks
Yes.
Candles themselves are simply a way of displaying the open, high, low and close for any specified time-period.
They do this with 100% accuracy, given an accurate price data-feed, for whatever time-frame they’re set for.
In general, if you’re looking at the extent to which their patterns can have any probabilistic predictive insight into future price-movements, “the longer the more reliable”.
However you display the opens, highs, lows and closes (and I no longer use candles, myself), the display-patterns will always be more reliable, but give fewer “signals”, on longer/slower timeframes.
If you identify something that has an “edge” in that the overall price-direction after a particular pattern will be anything other than 50/50, it’s going to become more reliable as the periodicity of the candles gets longer, and less reliable as it gets shorter.
Note that that [B][U]doesn’t[/U][/B] mean that the candle-patterns on longer/slower charts are necessarily more [I]profitable[/I], though, because [U]profitability and reliability are two different parameters[/U].
It may be that shorter/faster charts are still more profitable, because the inferior reliability of their “pattern signals” may be more than compensated for by the much greater trading-frequency they enable (and that’s my experience of them).
It’s more profitable to make an average of 15 pips profit with 70% reliability twelve times a day than it is to make an average of 25 pips profit with 80% reliability twice a day. (I’m throwing out nearly-random figures here, just to illustrate the point I’m making.)
In other words, when you’re trading, don’t confuse “win-rate” with “overall profitability”. It’s nice to have a system that’s based on 75%/80% accuracy, but it’s not much use if the occasional losses are really big, and it’s also not much use if it’s a system that only trades very rarely.
Thank you for the comprehensive reply and the fundamental underlying message that profit is what it is all about.
Really helpful discussion. Appreciated.
Thanks for sharing valuable information…
candlesticks of course work on all charts, they are most influential on higher time frame charts. For example, I now point out a bullish engulfing pattern, which you can look up if you dont know what it is, but it is a VERY reliable high probability pattern.
I attach a chart, a weekly chart for GBP/USD, look at chart and find last 2 bars and tell me what you see?>
Bullish engulfing pattern: grade2-cs-bullish-engulfing - BabyPips.com
Bullish engulfing pattern: Bullish-engulfing - BabyPips.com
I dont like to add external links but I feel it is required here to completely communicate what this pattern is, so that everyone can understand it, this is an important part of consistent profitable trading. this is a must learn!
master and understand this and improve your trading overnight!
Bullish Engulfing this provides a very detailed explanation, I could not possibly explain it better than this!
this example on GU in the attached chart is technically not a bullish engulfing as the top of body on the second candle I believe is actually slightly lower than the body on the previous candle. I zoomed in all the way and I am getting old and my eyes missed this one. even though this is not technically as bullish engulfing because The body of the second candle HAS TO completely engulf the body of the PREVIOUS CANDLE day, I think its still very bullish even though it may have missed the pattern slightly BECAUSE this is a weekly chart, follow the PA, and understand the path price takes, and the way it goes tells a tale, a bar chart may be better to understand the price action.
Hi
When I first started trading I wasted a lot of time trading candlesticks on short time frames, 5 mins, 15 mins, 30 mins.
I’ve done backtesting on it and I really don’t think you should trade solely off them, especially in the lower time frames, a nice rejection candle on a 5 minute chart just says to me… “Here newbie traders, the market has turned around, buy me\sell me here and just have your s/l below this rejection candle”
It’s an easy trap! Don’t get suckered in, I only look at the candles on 1hr and above for decent signals.
Good luck
Mark
Candlesticks are a useful way of pictorialising price movement over any time frame but they’re just a guide. If you want, they can be used for identifying very precise price actions, as mentioned above engulfing candles are interesting, so are pin bars/hammers, dojis etc. etc. But if you’re going to make a trading decision off a candlestick, taking its meaning literally, make sure it is in a time frame that has a closed period between each candlestick. What I mean is, forex is a 24hr market Monday-Friday so Opens and Closes are not meaningful and can even show at different price levels on different chart versions of the same pair. Forex has a weekend closed period, stocks have overnight closed periods as well.
Trading on patterns should be use on any timeframes, from low to high, but there we have some features. So, when the timeframe is higher, we will have more precisely signals on the patterns, but we will have less signals for enter. For example when we trade on D1 chart and use several patterns, you should enter the market 3-4 times. These inputs, of course, will be accurate may be on 95% and will make profit. However the inputs will be a little and it will no give you the opportunity to earn very significant amount.
On the other side when we use low timeframes, the entry points are more but the enter points are less precisely. You will make more loss, but the enters will be more and in the end if you follow all of the rules, you will make more profit.
Hello btbbrit,
Depends from the pattern. For example, pennants and flags you will recognize them most of the times in a short-term timeframe. Triangles you will find them in a medium-term chart and rounding top or bottom pattern on a long-term timeframe.
Not my experience, at all.
Currency charts are [U]fractal[/U], so I can’t imagine any reason at all why there would/might be more rounding top/bottom patterns on a long-term timeframe than on a shorter-term one. That would really be [I]extremely[/I] strange, if it were so! :o
On a long-term timeframe is more possible for a pattern to be complete successfully.
Hi,
Higher time frames more than 1 hour chart is the best for trading with candlestick patterns. Because in lower time frames you get noises and certain candlestick patterns creates confusion for traders. In higher time frames like daily time frames you can get clear candlestick patterns.
Personally, I like the longer time frames, that is what suits me.
i feel they work better on 1hr, 4hr and daily especially when theres a touch of pinbars on support and resistance areas
