THE JOY OF CANDLESTICK TRADING - a Learning Experience

Beginner Questions
205

To [B]8pipike [/B]and that trade!

To answer this question properly I will introduce a full chart of the trade. Notes below the chart >>>


By tymen1 at 2008-04-07

I think I have the right “pattern” here 8pipike. There are some big problems with this trade and I will go thro them.

  1. I have re posted the chart because your chart is very small and it is extremely difficult to see anything! :confused:
    Magnification is [U]essential [/U]when dealing with candlesticks - I am glad you put a green marker line on your chart, otherwise I would not have seen anything.

You do not need to have 100 candlesticks showing before your pattern! 3 or 4 is plenty. What use is knowing what happened 12 hours ago??!! :o

  1. The MACD is not necessary on your main charts - only on a 5 minute if you use it. So delete the MACD off your main chart and get more room.

  2. Unfortunately, your “pattern” is nothing - not even a morning star ([U]not [/U][U]evening star - check the difference[/U]).
    The long shadow of the centre candle simply nullifies it and hence the entire pattern - it is a matter of psychology. The long shadows make this a dangerous trade to enter.

  3. This non pattern is not located on the Bolinger bands (upper/lower) as Max99 and Vulcan Classic pointed out.

  4. The morning star is not as reliable as the evening star. It should be traded as the morning [U]doji [/U]star. Do you know what pattern that is?
    I do not trade morning star patterns as such. There appears to be much greater probability in engulfing and dark cloud patterns.

  5. I do not believe that the fundamentals would affect the trade if the candlestick pattern was a valid one. The patterns work regardless of the news releases - in fact the news releases often give the pattern its power.

  6. Your 5 min chart lacks magnification and the Keltner bands are invisible.

See if you can do better next trade !! :slight_smile:
Be vigilant and pick only quality patterns. Avoid getting desperate and going for just any pattern.

[B]Finally, my chart is very much the same as yours and that with different brokers. So much for all the claims about price manipulation and running stops.[/B]

206

Answer to question posted by Tyrant Ragg :

Your question is the wrong way around.

Suppose the resultant is going [U]down [/U]telling us that the best short entry is on the [B]lower KC band[/B]. Suppose also that the immediate price is [U]higher [/U]than the [B]lower KC band[/B].

Then obviously, you would enter [U]immediately[/U] and gain those extra pips.Remember, the KC indicator is a probability channel and, therefore, serves only as a guide. Take those extra pips as a bonus!! :smiley: :smiley:

Using the KC, you always go for the best price entry you can get. The KC helps you to get that best entry but sometimes straight visual examination does better! :smiley:

You are, after all, playing around with an indicator with all the lag limitations! :o

207

To Babysteps :

Sorry, I cannot open your files - they will have to be in a different format - or better, in attached images form.

208

[B]Answer to Tyrant Ragg’s 2nd question [/B]:

Yes, this would be a valid short entry straight after completion of the red (3rd) candle of the evening star.

The best entry possible would be obtained.

It is a pity that the price is now headed for the stop loss which would be located 2/3 pips above the “star” candle.

But if you sense that this trade is going totally against you then it is possible to cut your losses by getting out early.
On the other hand, the price has not yet hit the stop loss. I have seen trades come within 1 pip of the stop loss then roar into profit! You could wait for this.

If the trade does indeed fail, do not dispair. Often a 2nd evening star comes along, or other candlestick pattern such as dark cloud and then the price roars in your favour - so much so that it more than cancels out the loss made from this pattern.

[B]
Late note on this question[/B]

I have examined this trade on my own charts. The evening star is not on the Bolinger bands but rather somewhat down from it.

Looking at it carefully, I would not trade this pattern. Being short of the upper BB it has too much upward potential and that is starting to show.

209

Hi Tymen,

Thank you for your answer, I appreciate all the details.

I’m sorry for my English. Despite the great effort, what I put in while I write, I do make mistakes, this is not my native language -not an excuse, just a statement.

Have a great day!

210

[B]And now another chart related to 8pipike’s first chart.[/B]

His chart was a 30 minute of EUR/USD. The one below is a the [U]same one[/U], only it is 20 minutes.

Notes below the chart >>>


By tymen1 at 2008-04-07

This chart shows the trade that [U]should [/U]have been picked (on a 20 min chart).

An evening star is shown and the short entry at 30 pips is accomplished on the next green candle. As you can see, it makes for a nice short trade.

But how did we get that 30 pip entry that puts us in the [U]middle [/U]of that green candle??

[B]See the 5 minute chart in the next post.[/B] :slight_smile: :slight_smile:

211

Here is the 5 minute chart :

Notes below the chart >>>


By tymen1 at 2008-04-07

The time of short entry is 19.40 and shown on both charts with a black vertical line.

At this point the BB is going up with the MACD level. Therefore, slicing the angle in half, the resultant (price) is going [U]slightly [/U][U]up[/U].

The best entry we can expect, therefore, between the middle and upper KC bands.

That is where the price is [U]now [/U]so we go short [U]immediately[/U].

Now you can see that the price actually improved a little 3 candles on, and we could have entered better. But then, we do not know that and we could also have done worse.

So our entry is considered good and we wait for the MACD to tumble down and go level and collect our profit! :slight_smile: :slight_smile:

Remember : Look for quality patterns. Do not rush in and pick any pattern. Be discerning.

[B]Next post - THE EXACT REASON WHY CANDLESTICKS WORK SO WELL. PROBABLY THE MOST IMPORTANT POST ON THIS WHOLE THREAD. IF YOU UNDERSTAND THIS, YOU WILL UNDERSTAND AND MASTER CANDLESTICKS.

DO NOT MISS THE NEXT POST !![/B]

212

Your english is fine, I think he was talking about lovelyforex.

213

Tymen,

Maybe I�m missing it but from the chart 8pipike posted it looks like he�s pointing to the candle at point A on the chart I posted.

That�s not a valid signal and I wouldn�t have traded that close to the news release just two bars later. That would have been quickly stopped out. Have you had success entering a trade before major news releases?

EUR.jpg700×437 43.7 KB

214

These files are indicators for MetaTrader. For those who use it just copy the files into your indicators folder, the restart MetaTrader and add the custom indicators to your charts. I see some potential with them but hopefully Babysteps can gives us more details. I�m not sure about the candlesticks indicator and the pattern recognition shows candle patterns, but way too many.

215

New to forex and been studying/reading like crazy…this thread has been one of the most informative resources I have come across…thank you tymen1 for sharing your knowledge…

216

[QUOTE=Max99;44290]Tymen,

Maybe I�m missing it but from the chart 8pipike posted it looks like he�s pointing to the candle at point A on the chart I posted.

That�s not a valid signal and I wouldn�t have traded that close to the news release just two bars later. That would have been quickly stopped out. Have you had success entering a trade before major news releases?[/QUOTE]

Just like to share what i have done last friday during those time with recent sample by tymen/8pipike.

Instead i used 1H chart (see attached). During the 3rd bar on the encircled bars, i was thinking it is going to develop a pattern so i wait for it to close and wait for next bar. While i was waiting, i watched TV and forget for a few minutes to monitor. When i get back, i saw the pattern formed and quickly go to 5m chart for entry. Luckily, i returned when the large green bar showedso i doubt myself if i should enter. I change the chart to 1m to look for the perfect entry and managed to enter near the top. I used the 5m chart for exit and managed to get +68 pips when the MACD started to reverse direction on 5m chart.

This was also my first demo trial of tymen’s system and entry method and i’m also not aware of the news so this is some kinda luck. I’m not sure if i violated some of his system. :confused:

217

Hi Tymen,

Here is a trade I got faked out on.

I entered short at 1.9893 on the red candle of the scissor or engulfing ( not sure what it’s called). I watched the next candle push down, then I went away and it came back up. I decided it was a bad entry and pulled the plug at 1.9896. Small loss of 3 pips.
But . . . while I was working it hit the BB again then drove on down. AARGGH!!

My whole morning went something like that with a couple of other pairs too. Seeing as how it wasn’t outside of the BB I’m wondering if you might have taken that trade?

I guess it would have worked out if I placed my stop where you suggest, I forgot. I need to write down in point form the whole process.

Jeff

gbpusd 30 min.jpg700×362 54.5 KB

218

I had a read thro my latest posts today.

[B]I was horrified to see that my posts appear to have come thro as arrogant, self rightous and pompous [/B] :eek: :eek: :eek: :eek:

In typing enthusiastically, I come thro with entirely the wrong attitude.

I humbly [U]apologize [/U]for being arrogant.

I [U]apologize [/U]if I am perceived as being self rightous.

I [U]apologize [/U]for appearing pompous.

Of these attitudes I repent and seek to be more humble.
If not, the market will soon humble me, but I want to be humble first before I lose all my money.

If the readers here are learning more about candlesticks, then it is I who need to learn more also - about humility !!

[B]To 8pipike[/B]: I am sorry that I posted so harshly and arrogantly. You are doing well and by continuing your efforts you are heading for great success!!

Your English is fine. It is Lovely forex who needs to do English homework!

[B]To Tyrant Ragg :[/B] I am sorry that I appeared so self rightous. I will seek to show a better attitude!

219

You may well be right here Max99. I assume we can only be sure by asking 8pipike directly. I use reading glasses and I cannot see these smaller details which you can clearly see.

As you say, I agree with you that an entry at point A is not a valid signal.

I am totally ignorant about news releases. I just enter the trade. If there is a news release I never know about it as I am not a fundamentals trader.
Sometimes when I trade I get a very fast moving red candle going down. :slight_smile:
This is great - much profit - these must be the news releases.

However, being a scalper, I play it safe and cut off my trades. Some of these go on to produce tremendous profits and I miss out. Again, these must be the news releases that I know nothing about.

Not letting my trades run is a weakness I have and as a result, I miss out on profits. I would say that it is easy to trade better than I do.

My broker warned me, however, to beware of these news times as slippage is a major problem. I have not had this problem so apparently I must be getting in just before or nowhere near a news release. Or else a stop loss gets hit.

220

To Dank : Thank you for your compliment. Keep up the good work of reading/studying. Glad you like this thread! :slight_smile: :slight_smile: :slight_smile: :slight_smile:

221

To Vulcan Classic :

You are doing well there! Ferreting out those patterns. :smiley: :smiley:

The pattern you were seeking is called a “dark cloud cover”

Now my eyesight is not as good as yours and I submit that larger candles would make for easier trading.

If I see correctly, it appears that the red candle body is not as high as the green one before it. (its open not as high as the close of the previous candle).

If this is so, then this would invalidate this as a pattern. I submit that we should only look for quality patterns to minimize the risk of losing our money.

Go to this hyperlink again - click until you get the full script on the “dark cloud cover” pattern. See how it is constructed and what the requirements are. I still go there regularly myself just to check my own diagnosis.

Also, with the dark cloud, it is good to be well into the upper Bolinger band.

Japanese Candlestick Charting Explained

222

I would like to go thro this trade in some detail. I checked that pattern on my charts - it is exactly the same. Unfortunately, my 5 min charts have now deleted this area on 4 April.

I cannot see the Keltner bands on Tryrant Ragg’s 5 min chart so I cannot comment.

Also on Friday, I was trading the Australian share market so I missed this trade.

However, suppose we got a good entry after the 3rd evening star candle. Lets say, half way up that candle.

Then the price roared upwards and our stop loss is set at 2/3 pips above the high of the “star”. So we hit the stop loss.

[U]This is then, a failed trade.[/U]

However, a re-entry [U]short [/U]at the high of this 4th candle is interesting. The high reached a very rare point of 3.4 standard deviations on the upper Bolinger band.
Such a high is unsustainable and would very quickly drop down to the standard 2.0 dev. Bolinger band at which point it could be wise to close the trade - because with such extremes you do not know what will happen next.

This is apparently what Tyrant Ragg has done although it has nothing to do with the orthodox short entry method. Good for you, Tyrant Ragg, that you make a profit out of this. :slight_smile:
But watching the TV might not be such a good idea!! :stuck_out_tongue:

Maybe we should keep in mind that when such a spike occurs above the upper BB, it is worth a rapid short trade. :smiley:

223

[B]And now, for that post that I said was all important. ([U]long post[/U])

If you understand this, you will understand and master candlesticks.[/B]

[B]Why exactly is it that the candlestick method is so powerful?
Why can we get trades going when indicators do not show to even enter?[/B]

Well, here I am going to [U]try [/U]to answer this question. I will use an example from physics as an aid.

You all know what a magnet is. It is made of iron or an iron alloy and attracts anything made of iron, nickel or cobalt.
Place a handful of nails on a table and the quickest way to pick them up is to grab them all with a magnet. Then you can lower them back into a container.

A small bar magnet will pick up any small iron object, be it nails, screws, a knife or anything else. Indeed magnetic screwdrivers are the property of electricans and you can buy magnetic screwdrivers at a hardware store.
They make life easier when a screw drops into some inaccessible place.

Now the magnet has what is called a “magnetic field” around it. Any small iron object within this field can be attracted. But not so outside this field. The magnetic field gets weaker further away from the magnet.

Even so, this magnetic field is invisible. You know it is around the magnet because of the influence the magnet has. That is, you can see the effect of the magnet. But the field itself you cannot see.

Now look at the diagram below >>>


By tymen1 at 2008-04-08

However, suppose we put a bar magnet on a table and then put a glass plate over the magnet.
We then pour iron filings from a container onto the plate and rap the plate with our fingers.

The iron filings will take on a pattern something like in the diagram above.

Here we now have [U]visual evidence [/U]of the existance of this magnetic field. We can now, if you like “see” the magnetic field that previously was so mysterious.

Now we know that in all trading, including forex trading emotions are at work.
These we all know as being fear, greed, anticipation, indecision …and any others you think should be included.

But you cannot see these emotions. You cannot collect a container of liquid fear. Nor can you get a kilogram of greed.
These emotions are at work in the trading business but they are at work invisibly behind the scenes.
Because they are invisible, you can only see their effect when they occur.
price races down - fear is present…price goes up - greed at work.

But you [U]can [/U]see all these emotions!

Not with a glass plate and iron filings but with …yep…[B]a candlestick [/B][B]chart![/B]

Every time you see a candlestick pattern you see a “magnetic field”. That is, you see a recognized and well proven pattern of emotions at work. The candlestick chart is then, an [U]emotions chart,[/U] and you can see when the emotions are at work.
You can see which emotions are at work as well as discerning the intensity of those emotions.

Since emotions are a [U]main driver [/U]of the market, you now have the clearest view of what is happening. Therefore, you can enter and exit the market based on these emotions and be done with your trade long before the indicator devotee gets his signals.

Assuming that we have an emotions chart, we also know that these emotions are very predictable. We know what will happen next.
We, therefore, need to know our emotion (candlestick) patterns [U]accurately [/U]because a slight change in the pattern means a change in the emotions.

With indicators, [U]no such understanding is possible[/U].

The MACD, for example, is a mathematical manipulation of a series of closes. The MACD knows nothing of what happened between any two closes.
Was there a very high high? Did the price dip to a great low? Who knows? None of this information is revealed in an indicator. Yet it is this very information that gives away the emotions at work.

And it is the shape and pattern of the candle that reveals all this information, in the same way as iron filings on a glass plate reveal the activity of a magnetic field.

224

Thanks Tymen,

I printed those patterns and will check them before a trade.

Right now I’ve got some trades going my way but man what a fight. Just can’t get the mojo going. Yesterday was brutal.

Do you take countertrend trades?

It seems the entries are still valid but they turn around at or near the middle BB.

Also, what’s the longest you’ve had to wait for an entry?

I’m getting up at 4:30 AM so I miss the first hour and a half of the EUR session and I’m watching 12 pairs - one key point I learned here is not to trade the pair but the setup - thanks again.

Happy Trading