Candlesticks and time frame relevance

Hi all,
Just a question about candlestick types/patterns that occur in all the different time scales. Do these patterns act more or less severely based on the time scale of the chart, for example would a doji in a 5 minute chart be just as effective for signaling a possible reversal as in a weekly chart assuming all other indicators and news action do not play a role? I’m new to the fx scene and have been trading CFD’s based on weekly and daily charts and do not pay much attention to candlesticks, however I was wondering if they were more important for trade confirmation in intraday fx trading than in weekly trading? Also this question is probably similar to the above; should a technical analysis trading system that has an edge in the weekly/daily chart timescale have a similar edge if used in smaller time frames such as the 30min/5min charts?
All responses are much appreciated:)

the general rule of thumb for time frames no matter what you are using weather it be candlestick, ema’s, macd or a flip of a quarter. The smaller the time frame the more fake outs you get. The trick is to find out how you want to trade and then use the approite time frame. If you only have 1/2 an hour a day then use the day chart, if you have 6 hours a day then scalp on the 10 min chart.

Thanks alot for the reply

I agree with Bazooko

This question has been asked before and I will repost my answer :

I have known about candlesticks throughout my share trading but have only now realized their power and started to learn about them in detail.

I have basically dumped the use of indicators as they have at best, a reliability of less than 50%. Sometimes guessing is superior! I was making losses using indicators. After switching to candlesticks my trading improved markedly, I started to make money and i had a smile on my face.

I am taught by the books i have, the experts on this forum, and the experts on the internet generally that :

The [U]shorter [/U]the timeframe, the [U]less [/U]reliable the candlesticks become.

Therefore :

A daily chart is more reliable than a 1 hour chart.

And a 1 hour chart is more reliable than a 5 minute chart.

I dread the thought of using a 1 minute candlestick chart! :eek: :eek:

Regards, Tymen Wortel, Perth, Western Australia

thanks for reply on candlesticks, my mentality towards them was different in regards to timscales of charts and thank you for your response

Personally, I have found candlesticks to be best on daily and longer charts.

IMO, if you are comfortable with long time frames you have a significant advantage over intraday traders.

Backtest your ideas on daily data and then test them on intraday data. How many pips did you net for each? What was your commitment of time? How much stress do you like? :smiley:

I feel alot more comfortable with the longer timeframes such as daily and weekly, however with fx are those times frames harder to trade than equities because of the continual release of economic data? would a trade entered based on the weekly chart have a higher chance of reversal with economic data release if bad as would an equity that has just had poor earnings? What i’m trying to get at is FX as technically sound as equities or do the fundamentals play a greater role especially when having trades of max duration 2 weeks?

I cannot compair fx to equties because I know nothing about them (equities) however I can tell you that when trading the long term like the day or week you are not as affected by the news. Just look at nzd/usd, jpy/usd or gbp/usd to see what happens on a bad news day

thanks bazooko for answering myquestions, all these aspects about the difference between equities and fx were causing fear lol because i’m so unfamiliar with fx.

I definitely like the intraday candlestick trading for now. Little stress and making very successful returns with a special method i am developing.

Regards, Tymen Wortel, Perth, Western Australia.

I only use daily charts and use candle patterns with s/r to enter and exit my trades.

I only have one book - The Candlestick Course by Steve Nison and I find it indispensible. I moved to live trading two months ago after six months demoing and am very happy with my results so far. Stick with candles and you’ll do well.

tymen dont forget to let us know your system and how it is doing.

To Bazooko :

I am basing my candlestick approach on three things. The idea is to get an extremely high probability entry to go your way. :slight_smile:

  1. The candlestick pattern

  2. Placement on the Bollinger band

  3. A staged entry to get the best possible price for the entry. This means that if the price goes against you then a second entry is made and the computer averages the entries to give an even better entry.
    This puts you at the very cutting edge of the price about to go your way.

A fairly high leverage is used as a result and only a maximum of about 10 pips plus commission is targeted. The profit, therefore is made very rapidly.

It is like a sniper attack, but not so bad as to look like scalping which, I am told, brokers do not like.

No stop loss is used to prevent “stop hunting” although a distant stop loss can be used as a protection against computer breakdown and a possible margin call.

So far I am thrilled with the results, but I am still working on the idea to improve it still further.

Kind regards, Tymen Wortel, Perth, Western Australia

I agree with Tymen1 and Bazooka. Candlesticks are effective because they interpret certain aspects of what the market is “thinking”. A doji for example shows that there are equal bull and bears in the market showing a balance. This can sometimes signify a change in trend.

The longer the time frame the more market reactions go into making these candles more meaningful. So the timeframe is proportional to the reliability of these as indicators of the market.

A good book to read about technical trading and especially candlesticks that I found is Trading Secrets by Louise Bedford.

I hope this has helped you and good luck with your trading.

thanks all for the replies! :slight_smile:
They have all been very useful. Thanks GCT for the insightful reply, you truly know candlesticks and timeframes in great depth! definately a valued babypips memeber!