To Watteau :
What we are trying to look at here is whether the BB is expanding. If it is expanding rapidly, it is dangerous to trade on a candle pattern going in the opposite direction. The momentum is definitely going in the direction of the BB. A flat BB suggests that there is no expansion and therefore, it is much safer to trade a reversal candle pattern.
You will see this in action in the coming posts.
To Bill Clinton :
Thank you so much for your very kind compliments. 
It is refreshing to see a face on the avatar as both you and Dale Paterson have done. I will be doing the same when I reach Honorary FX member status, but I have some distance to go yet!
Welcome to this candlesticks thread. I believe candlesticks are the best way to trade. They are the simplest method and do not suffer the lag that is involved in indicator trading - indeed their immediacy of presence is awesome.
Your settings are all correct but I would recommend a few modifications :
The GFT program has the Di Napoli MACD in its indicator selection. Use that one in place of the standard MACD. It operates a little faster.
Then set your Keltner channel to period 4 rather than 5. This brings it closer to the settings of the Starc bands, which you may also like to include in the 5minute charts.
Colour your Bollinger bands Blue or dark grey and set them as very thick lines.
Colour your Keltner bands (all three) in orange. (moderate thick lines)
Colour your Starc bands (all three) in dark green. (moderate thick lines)
This will help you distinguish between these lines more clearly.
I hope the material here is of benefit to you.
All the best of trading to you.
[B]To continue our trading, we do not need unnecessary obstacles ahead.[/B]
As such I want to dispel a few myths, indeed two of them that keep appearing on this forum.
[U]If you believe these myths you will never be able to trade properly[/U].
So here I shut them down once and for all for us candlestick traders so that we can continue to trade with [U]true confidence[/U] that is needed for success.
[B]Myth 1 - No stop loss needed.[/B]
People who do not like stop losses love margin calls! 
It is ridiculous to trade without a stop loss. Some people boast that they do not use them and win 99% of the time. They obviously know nothing about money management or that even such a science exists.
But the 1% time they do lose they do all their dough and are left with nothing!
A stop loss will protect you from power blackouts, computer failure or internet failure. This is a [U]PCI stop loss[/U] - power, computer, internet.
Then [U]money management[/U] comes in. This is a well established science and is thoroughly proven.
With a stop loss, the first loss is always the least.
Without a stop loss, a trade that goes against you will know no bounds and a margin call is a real possibility. If it does come back to you it may do so only after a considerable period of time - and that is a dreadful waste of time that could have been used making good trades.
Even if it does come back, the profit potential may be very limited as I have found out in my earliest demo trading. :eek:
[B]Myth 2 - The broker is out to run your stop loss.[/B]
Yes, the broker is an ogre! He has looked at your tax file number, and it has a 666 in it! Or you name displeases him because he had an unpleasant experience with another person with your name!
So, out of the thousands of trades he receives, he has singled you out, yes you and only you and he is out to get you. Your stop loss is a goner.
After all you were a born loser werenāt you?!
Lets look at something.
Joe places a long trade and he sets a stop loss short at -50 pips. Now Tom sees the trade differently and decides to go short. He places a long stop at +50 pips.
Now the broker is going to run the stops. So how is he going to run both these opposite stops at the same time???
The broker warehouses all the trades and matches the longs with the shorts. As I understand it, any excess they offset with a hedge. I donāt claim to know exactly how that works but Rhodytrader is the true expert who understands all the nuts and bolts of the way a broker operates with these things. He is welcome to post here to tell us how these offsets work so as to increase our limited knowledge.
I have examined carefully the GFT price feed with that of EFX, an ECN broker. They are usually the same, and, if there is a difference, it is only at most, 1 pip.!!
To finalize, I give the following hyperlink :Those Darn Market Makers
With these matters sorted, we should now be able to continue our trading with confidence.
Iām looking forward to Term 2 of Candle Stick School! 
[B]Definitions :[/B]
At this point in time it is important to introduce a few definitions I use to save confusion among readers.
[U]Main chart[/U] - this is the chart you open and use, be it 20 min, 1 hour, daily etc.
[U]KC chart[/U] - this is the very short term chart using the Keltner channel (set to period 4, factor 1) to try to get best entries. This chart is approx 1/4 of the length of the main chart. So for example, a 1 hour main chart uses a 10 minute chart, same for 45 min main chart. A 4 hour main chart uses a 1 hour KC and for daily use a 4 hour KC chart.
[U]PCI stop loss[/U] - this is the disaster stop loss used to protect against power, computer or internet failure.
[U]Stop loss[/U] - just ordinary stop loss.
[U]Amount[/U] - up till now we have been discussing entries using 2 lots. To make this more general, I will use the term āamountā. In this amount, we can have as many ālotsā as we please. These lots can be standard, mini or micro.
From now on, we will look at entries based on 2 āamountsā rather than 2 lots.
[B]I am going to show another evening star trade here but with a specific purpose, that being to come to a conclusion on the use of our stop loss.[/B]
By tymen1 at 2008-05-09
This trade, done on a demo platform shows an evening star on the BB highllighted in blue on a [U]50 minute chart.[/U]
The 4th candle (1st after the red) was entered [U]late[/U].
The entry, stop loss and take profit lines are shown. The risk/reward here is 1/2.
The next chart is a [U]10 minute[/U] KC chart of the 50 minute main chart trade.
Here is the 10 minute KC chart. Notes below chart >>>
By tymen1 at 2008-05-09
The opening and my very late short entry are shown by the vertical lines. At my short entry the MACD was going up, the BB going slightly up - resultant going slightly up - best entry near upper KC band.
I got a very good entry at 70. (purple line). The target profit line can be seen but the stop loss is too high for the chart. I considered this trade to be somewhat high risk because of the rising of the BB at the red candle of the star.
Now what happened?
The trade oscillated between profit and loss as it went along. I was determined not to exit until it hit my target profit. I could easily have done an exit at any time it was showing profit, but then your risk/reward ratio is interfered with.
So I plodded along.
The last candle shows that the price came within a fraction of my target profit!! :mad: :eek: :rolleyes:
[B]Next chart.[/B]
[B]In the next main chart the final result is shown >>>[/B]
By tymen1 at 2008-05-09
Sigh! The price action went thro the stop loss first. Loss of pips - by a fraction. Was I too greedy?
Not really. An āon timeā short entry would have had a lot less room for profit and a much longer distance to the stop loss - risk/reward a mess.
In the next post I will reveal a piece of insight that suddenly came to me. I saw a real breakthrough that shows that we can put a [U]permanent end to this [/U][U]lost trades[/U]
Yep! - [U]PERMANENT END TO LOST TRADES.[/U]
Do I have your undivided attention??
If I do then I will keep you in suspense, because this very exciting breakthrough will be revealed tomorrow!
Tymen ; Now I have to sit on my hands till tomorrow. LOL:rolleyes: But I am sure it will be a worth while waitā¦ Thanks as always
Tymen,
Iām wondering if it would be best to take trades that only agree with the resultant of the BB and Macd.
Example, in the last trade you showed us you said "At my short entry the MACD was going up, the BB going slightly up - resultant going slightly up"
So with an evening star pattern, which we always short, a resultant going up is not what we want, unless you have a wide stop loss and stay in the trade a bit longer hoping it corrects itself.
The resultant was correct after all, it did go up and hit your stop loss. 
Your thoughts pleaseā¦ 
I quoted you directly here so that other readers could see your post and my answer.
No! No! No!
There is absolutely [U]no correlation [/U]between the KC resultant and the ultimate outcome of the evening star price action.
Most of the time an evening star gives [U]great profit[/U] by price action going down (trading short).
But usually there are immediate [U]retracements [/U]and the KC chart aids in getting the best short entry on these retracements.
To get this best short entry the resultant, by definition, [U]must be going up[/U].
Yet the ultimate price action will be going [U]down [/U]to get our profit
The Keltner approach is only an aid to getting a best entry price should there be a retracement.
A lot of the time the best short entry on an evening star is the [U]opening [/U]of the 4th candle. In these cases the resultant is nearly always going down.
The subsequent price action here could be either down to profit or up to a price retracement and then down to profit.
But when the Keltner approach [U]does [/U]work the short entry is usually a good deal better than the opening.
Hope this helps.
[B]And now, to show what I was raving about :
how we put a permanent end to these lost trades!! [/B]
Its so easy!!
When we enter short at a high point we let the price go down then ā¦
ā¦[U]we shift the stop loss![/U]
ā¦to a point which is the distance of the spread below our entry point.
Huh ??? 
Let me take an example.
Say we are trading pair A/B with a spread of 3 pips.
Now we entered at, say, a price of 50.
Our stop loss is sitting at, say 75.
Lets say the price action is now hovering somewhere below 50.
We then move the stop loss to 47.
If the price should backfire on us, and retrace completely, then it will hit our new stop loss and we will get out of the trade with nothingā¦
ā¦no profit, yesā¦but also no loss !!
This whole idea is nothing new. But in our search for achieving and maintaining a correct risk/reward ratio this will become important.
[B]In order to get a [U]high [/U]short entry, the next post shows a revised trading plan attempting to cover all short trade types. In these the [U]shift of [/U][U]the stop loss[/U] is shown.[/B]
[B]In this diagram, I attempt to portray the trading sequence as we know it now in order to preserve a correct risk/reward ratio and also a good win/loss ratio.[/B]
Notes below diagram >>>
By tymen1 at 2008-05-09
There are 2 drawings and they look complicated at first. Lets go thro them :
[B]Pips first trade[/B]
At A we enter short with [U]one amount[/U] using the KC chart method to get best entry. It is usually entered at the āopenā but quite often a much better short entry is obtained. A stop loss is set near the top of the 3rd candle or above the top of the star according to our risk assessment.
A small target profit is set.
At B the target is reached and the trade is closed. The stop loss is also promptly closed. Since the price went down, the stop loss is really irrelevant.
From B to C the price retraces and we simply rest and watch.
We re-enter short with 2 amounts at C, wait for the price to fall, then shift the stop loss (D) as explained in the post above.
A much bigger target profit is set at E where [U]1 amount [/U]is closed, then the remaining amount is traded short according to intuition.
[B]Retrace first trade.[/B]
At A we enter short in exactly the same way as the āpips firstā trade.
At B [U]we frown[/U] as we see the price action going against us, going to a retracement/pullback. :mad:
At C we detect the limit of the pullback and we enter short the [U]2nd amount[/U].
The computer averages the 2 entries and [U]we grimace [/U]as we see that our 2nd entry is still above the average and therefore we are still in the negative. :rolleyes:
We wait for the price to fall, then shift the stop loss (D) as explained in the post above.
We set a decent target profit at E where [U]1 amount [/U]is closed, then the remaining amount is traded short according to intuition.
[B]This diagram is subject to revision.[/B]
How do we know where the retracement peaks are??
[B]Well, there is plenty of meat to digest in the posts so far, so I will post that answer tomorrow - going shopping so I will probably post late.[/B]
[B]Comments welcome.[/B]
Firstly, i think you are brilliant, and i am learning your ways thoroughly and in silence, as everything is there in your threadā¦But here i am now, and i was wondering when the price āretraces firstā as in your diagram and then it hits the āpeakā, and so then, as you describe, we place another amount āCā. At this point i would be extremely nervous that the price would continue up and i would be just doubling up my lossā¦ as i have done before in demoā¦mmm and live too, thinking it would return to going down. Though i understand that thinking it will go down is different to having the strategy to back you up to telling you it will go downā¦Soā¦
Where would the stop loss be placed for amount āCā?
At the same stop/loss as A or further back upā¦
thank you
travis
tymen thanks for the explanation.
How do we know where the retracement peaks are?? Thatās the million dollar question. Iām not sure what the answer is, i look forward to yours.
We would definitely have to have a good idea of that, otherwise we would be adding to a losing position. :eek:
Iāve been wondering that too,
retrace or reversal? Million dollar question for sure!!
I guess thatās what the stop loss is all about, even though youāve added to the position, the second amount wonāt have lost as much as the first. Better than if you went all in at first entry.
[B]Welcome to this forum and welcome especially to this thread on candlesticks.[/B]
I notice that this is your first post. You are asking a very intelligent question ie where is the top of the retracement?
This question is now being asked also by Greywolf238 and VulcanClassic and probably every other reader as well.
Just to answer your other questions first :
At this point i would be extremely nervous that the price would continue up and i would be just doubling up my loss
[U]If [/U]you have chosen the evening star carefully (long red candle etc) and checked for a āsedateā BB then the price action should go down and [U]not [/U]continue up. This is the whole reason for the existance of this pattern - it signals a reversal. A retracement should be just that, and no more. This is the case in about every good evening star I have traded.
You can place the 2nd amount with confidence.
The very worst that can happen is that you enter short at the opening of the 4th candle and the price goes straight up to your stop loss. If that is the case I would question your choice of evening star pattern. I have not seen this happen but have seen retraces come within 2 pips of the stop loss.
Where would the stop loss be placed for amount āCā?
At the same stop/loss as A or further back upā¦
Leave the stop loss in the initial position until you feel sure that you can shift it without price action doing a prompt reversal. Then move it. If the price subsequently does reverse you have lost nothing.
How do we know where the retracement peaks are??
ā¦so I will post that answer tomorrow
ā¦from my own post.
[B]So now to answer this question.
Next post.[/B]
Finding the top of a retracement after an evening star pattern is not as difficult as you might think but not super easy either. You have to look carefully.
The answer is to go to the KC chart.
On here drag the MACD down to its smallest size so that the price action fills your screen - maximum view.
On this chart you will have your Bolinger bands and Keltner channels (period 4, factor 1) and possibly also the Starc bands. The Starc and Keltner bands will follow each other closely.
For good colour contrast use blue or dark grey for the BB, orange for the Keltner and dark green for the Starc. Remember that you also have colours for the candles so therefore my colour suggestions as given.
Look at the 2 drawings of a KC chart below >>>
By tymen1 at 2008-05-15
These diagrams show the basic principle on how to detect a retracement/pullback top. You do not have to enter at the exact top (you do well if you do) but close to the top is good.
The 2 diagrams show the blue Bolinger bands, orange Keltner upper and lower bands (middle band missing - irrelevant) and also the upper and lower Starc bands in green.
For good contrast and clarity for readers, I have filled the middle of the Keltner/Starc bands in grey.
The overall general direction of price action is shown by the pink arrow.
A candle is shown. It can be green or red, does not matter. Note that the wick or top penetrates the bands.
In the first diagram the Keltner/Starc bands are going up and the highest candle wick or top penetrates all three bands as shown. The [U]upper [/U]Bolinger is tagged or penetrated.
In the second diagram the Keltner/Starc bands are going down (it is subtle - look carefully!!) and the highest candle wick or top penetrates all three bands as shown. In this case the [U]middle [/U]Bolinger is tagged or penetrated.
[U][B]IMPORTANT NOTE[/B][/U]
On looking back thro this post I have discovered an [U]additional [/U]entry diagram. When the Keltner/Starc is going [U]down[/U] the highest candle wick/top may also tag/penetrate the [U]middle [/U]Keltner/Starc at the same time as the [U]middle [/U]Bolinger.
I will revise the diagrams next post to save confusion
[B]To assist you in becoming competant with finding these pullback tops, the posts that follow will look at trades where this matter is dealt with in detail.[/B]
[B]Hi Tymen:)
I Really like your thread Coz i am also trading through this wounderfull pattren on higher timeframeāsā¦ Just read it almost all Nowā¦Thankās for your wounderfull contributionās ā¦ Really Seemās Usefull for everyone hereā¦
PipHacker:D [/B]
To Piphacker :
Thank you for your compliments.
I trust you will do well on the higher time frames ļæ½ some of our veteran traders are using those time frames as well.
Just a little tip for your posting.
Try going one size up in your typing and switching off the ļæ½boldļæ½ tab. Bold print is used only for emphasis.
All the best!