Let take engulfing pattern for an example. I usually do my analysis on tradingview, and use MT4 platform to trade. Sometimes there is an engulfing candlestick pattern on tradingview, while there isn’t on on MT4. Why? Because the open and close time of the candlestick are different. MT4 opens a candlestick at 8AM while tradingview opens at 11AM. So why are engulfing patterns an indicator of bullish/bearish continuation if they depend on the time frame I use?
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Candlestick pattern is just a rough guide that requires faith on the part of the user. It is like fibonacci level which recently TradeViper reminded me that it is just a self-fulling prophesizing tools.
However, base on my personal humble opinion. I think maybe the candlestick pattern during the high impact news hours for hourly candlestick may be more significant than during quiet times.
To me i have only 3 candlestick formation. Candlestick closed above mean = bullish
Candlestick closed below mean = bearish
Candlestick closed around mean = uncertain market/ sideways/choppy/ possible reversal
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That is precisely why such methods should be accompanied by dose of brain power or commonsense. Such patterns only provide an indication of the relative buying and selling pressures during those periods. All timeframes are using (more or less) the same continuous price stream whilst the market is open - they are just breaking it up into different sized packets each with its own H,L O,C.
For this reason you can only take these patterns as indications of what might be about to occur within the perspective of the TF you are looking at. Usually patterns on longer TFs are more accurate than shorter TFs but then daily charts will indeed depend on the starting time for the day’s candle.
It is the same principle with all indicators and patterns, that you can get differing results depending on which TFs you change to. Afterall, one can sometimes simultaneously see, for example, an uptrend on a weekly chart with a downtrend on the daily and an uptrend on an hourly chart.
This is one benefit of watching 2/3 different TF charts as it will help to confirm or doubt the signals/patterns seen on one or other of them. It is always wise not to rely totally on one thing such as a candle pattern, but to see it in context with whatever other methods suit you - and consider the possible outcome within the context of its own TF.
All such methods are better approached with considered, subjective interpretation rather than pre-defined, mechanical conclusion.
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All price charts are representations of what the market has done, they are not the market themselves. The way the chart itself is set up can have a huge difference on how you might interpret what the market has done.
With charts and definitely with all off-chart indicators I find its useful to regard them not as photographic or video evidence of what happened, but as an artist’s impression.
If you’re involved in a strategy that depends on was this price 1 tick higher or lower than that price, you’re likely to find it doesn’t work as reliably as the books say. A “broad brush” approach might be more reliable.
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Candle stick patterns give a look at the collective psychology of the other traders. Take for example the engulfing pattern. Here is what it says to me. Price has moved significantly up or down. Other traders have been anxiously awaiting an opportunity to get in. Most likely because this is a retracement on a larger trend (but not always).
The fact that traders have come into the market to aggressively reverse price direction tells me this is a real move and not noise. The other traders are excited about getting in at this price and I should be too.