THE JOY OF CANDLESTICK TRADING - a Learning Experience

Beginner Questions
469

[B]Here we see the full length of the above trade in this 10 minute KC chart.[/B]

This chart is the [U]first [/U]of a new generation of charts wherein I seek to provide greater clarity.


By tymen1 at 2008-05-09

There are [U]2 ways[/U] this trade could have been executed :

[B]Method 1[/B]

Even though the first 3 green candles after the entry show long lower wicks, they do not go down far enough to get a decent “pips first” profit. We, therefore, leave it alone and let the trade run.

The price goes up towards point R.

We then declare a “retrace first” trade.

Now, the Starc band (grey) is going down (look at the chart), and point R is above the middle Bollinger band (visible on the chart), and also above the middle Starc/Keltner bands (not shown).

Point R is then, by [U]definition[/U], a retrace top.

We short enter our 2nd amount here and the computer averages the entry. The new entry sits just about right on top of the middle Bollinger band (blue).

From here the price goes down. Cancel the old stop loss and set the new stop loss a spread under the point R.
The best profit is taken around point A. [U]Also cancel the stop loss![/U]

END OF TRADE.

[B]Method 2[/B]

After short entry (1 amount) we exit with only few pips at the long lower wick of the 3rd green candle after entry. Thus we declare the trade a “pips first” trade. Upon exit we also promptly close the stop loss.

Do not leave the stop loss lingering. If there is a PCI failure then your stop loss may become an entry for an unwanted trade!! :eek: :eek: :mad:

We are out of the trade and watch the price action rise to point R.

At this point we procede as per method 1 with 2 amounts.

Method 2 makes a tiny bit more money than method 1.

END OF TRADE.

Note that the Starc bands go up after point A. Therefore, further retraces should consist of price action tagging/penetrating the [U]upper [/U]Bollinger band. This does not happen until point B, (or a red candle just before).

[B]Can we trade again from point B?. Lets look again at the main chart next post.[/B]

470

Jaguar,
MT4 is short for Metatrader 4, which is a free charting program that many many brokers and traders use, you can download it for free.
STARC bands is just another technical indicator used my many charting programs.
Have you read the excellent lesson found in the babypips school.
I strongly suggest you read the whole thing, you will learn plenty from it.
Forex Training & Education: Beginner Foreign Exchange Currency Trading

Hope this helps :cool:

471

Thank you for your ongoing assistance Greywolf238. :slight_smile: :slight_smile: :slight_smile:

472

[B]Here is the main chart again so that we can see the location of point B.[/B]


By tymen1 at 2008-05-09

As you can see, point B is much too far away from the evening star pattern. It is, therefore, null and void.

The price action rose sharply after point B, and any attempt to short at this point would have resulted in disaster.

The first 4 candles after a pattern are significant, after that, 7 candles depending on price action.

[B]This then marks the close of this first trade.
The 2nd one will be a detailed examination of a dark cloud cover trade.[/B]

473

I just wanted to say thanks to TYMEN and anyone else helping out in this forum.

I clearly see the power of candlesticks.

I was wondering if candlesticks were good for day trading or scalping and after reading your very first post, I got my answer. Now I am going to slowly digest this entire thread (that is a lot of pages!) over the next week or so.

I have no questions. If I had a request, it would be some clear lessons on how to use candles with scalping. However, I am sure I will find my answers once I start reading.

Again, thanks for all the great work done here and to all the lean, mean muthas behind BabyPips. This place is an oasis in the sea of scams.

474

Welcome to this thread BrianSNJ!

I like your avatar!

You have come to what I believe to be the best thread on this forum. (of course I would say that!) :smiley: :smiley:

You will most definitely find all the answers to your questions here. Clear lessons on scalping are given in detail for you to read.

I believe you will be well rewarded and hope that you will become a candlestick trading convert.

475

[B]Dark cloud cover pattern :[/B]

Have a look at the following price action on this 25 minute chart.
What can you see?


By tymen1 at 2008-05-09

[U]There is an upward trend.[/U] An evening star appears in the middle of the chart - (can you see it) - it is tradable and breaks the trend slightly but overall, has little effect on price action.

Further up the track[U] 2 continuation patterns[/U] appear. Can you see them?

The last 2 candles make up a [U]dark cloud cover pattern [/U]and we will look at this trade.

[B]If you cannot spot the continuation patterns, the next post will show them to you.[/B]

476

[B]This 25 minute chart is a magnification of the previous chart and shows several patterns [/B]>>>


By tymen1 at 2008-05-09

On this chart the dark cloud cover is clear. It is powerful in pattern but the continuation patterns plus upward trend makes for a high risk stop loss. This is shown by the red dashed line at the top.

Next post - the 5 minute KC chart.

477

Here we have the 5 min KC chart and I will deal with the entry in detail.


By tymen1 at 2008-05-09

Like the school teacher that I am, I will again revise our [U]entry rules[/U].

[B]Repetition is boring but it makes for perfection.[/B]

These rules are as follows:

Look at the 5 min chart.
Draw the MACD vector.
Draw the BB vector.
Get the resultant of the MACD+BB vectors. The resultant divides the angle between the MACD+BB exactly in two.

Decide whether the resultant is [U]up, down or level.[/U]

If the resultant is up…best entry at the upper KC band.

If the resultant is down…best entry at the lower KC band.

If the resultant is level…best entry at the middle KC band.

Slightly up or down means an in between position.

On this chart the Bollinger bands are in blue and the Keltner channel is in grey with the middle band in yellow.

At the short entry line (vertical), the BB vector is slightly down and the MACD vector is steeply down.

The resultant is shown in the yellow diagram. (pink arrow).
The resultant slices the angle between the BB and MACD exactly in two.
The resultant is down.

As such, our short entry is immediate. That means our short entry is at the [U]opening [/U]of the new candle. This is the best price we can expect to get.

The price is 66.

[B]Next chart.[/B]

478

[B]Here we have a fully expanded view of the 5 minute chart >>>[/B]


By tymen1 at 2008-05-21

This chart shows the 3 Bollinger bands (blue) and the Starc bands (grey filled). The middle band is not necessary for this instruction.

[B]This chart is involved and I will go thro it [U]step by step[/U].[/B]

  1. We enter short at the black line on the left of the chart with[U] 1 amount [/U]at price 66 using the KC method.

  2. The price goes up and we declare a “[U]retrace first[/U]” trade. The Starc bands also go up.

  3. With the Starc/Keltner going up, a retrace must, by definition, tag the [U]upper [/U]Bollinger band. The price does just this after a long green candle. We are now not far from our stop loss.

  4. At price 88, the [U]2nd amount[/U] is short entered. The computer averages this to price (66+88)/2 = 77 for entry.

  5. Still at price 88, we [U]frown [/U]because the price has to go down to 77 before we even begin to make a profit.

  6. However, the price does go down (long red candle) and, to our annoyance, it goes up again (roller coaster ride) to point A. :mad:

  7. At [U]point A[/U] we already have our 2 amounts in trade so we must grin and bear it. :mad:
    Oh good! The price goes down again to point B at price 71.

  8. At this point we think - 77 entry minus 71 is only 6 pips. Lets forget about it and stay in the trade. Out of curiosity we click over to the [U]main chart.[/U]

  9. To our surprise, the main chart shows that [U]another dark cloud cover [/U]has formed!! This gives us confidence that we will most likely see a good profit. (you will see this extra dark cloud on my next post).

  10. Turning back to the 5 minute chart, we [U]weather the storms[/U] and watch the price action going down thro the middle Bollinger Band.

  11. [U]This seems a good point to cancel our stop loss and reset it to 74 pips. [/U] (77 entry-3 pips spread = 74).
    If the price now retraces, we make no loss, no profit.
    We continue and arrive at point C, at price 67.

  12. Now price 67 is 10 pips less than entry 77. We could, if you like,[U] exit 1 [/U][U]amount[/U] here for a profit of 10 pips. The choice is yours.

  13. The Starc/Keltner bands are going [U]down [/U]now, therefore, by definition, a retrace must be a tag of the [U]middle [/U]Bollinger band. This occurs at E.

  14. If we did a 1 amount exit at D we could re-enter that amount at E. Or do nothing. The choice is yours.
    If we did no exit at D, we have to remain in the trade.

  15. The price action then drops to F at 57 pips, 20 below our entry. What you do here will depend on what you did earlier.
    If you still have 2 amounts you could exit, ie 2x 20 pips = 40 pips.
    If only 1 amount then 1x 20 pips + 1x 10 pips = 30 pips.
    There are more combinations available. The choice is yours.

  16. You could also exit one amount at F for 20 pips and then leave the remaining amount for the “final exit”. Doing so will get you some 30 pips giving you a total of some 50 pips.

END OF TRADE.

479

[B]Here we have the last 2 charts showing the trade on the main chart again >>>[/B]


By tymen1 at 2008-05-21

You can now see the trade in perspective.
The second dark cloud cover pattern is visible.
Our entries, together with the average, are shown.

480

[B]This is now the last chart of the series - main chart >>>[/B]


By tymen1 at 2008-05-21

This chart returns us to the beginning with the upward trend and the 2 continuation patterns in yellow and grey.

The dark cloud we traded is shown in light blue. The second dark cloud that appeared on the way is shown in dark blue.

Note the price drop after the [U]2nd dark cloud[/U] candlestick pattern. This is probably the [U]most important lesson[/U] in this series.

Remember before when we looked at Bollinger bands that were going up very steeply? The evening star that appeared causing the price action to go sideways only?
Remember the appearance of a 2nd candlestick pattern to eventually knock the price action down?

The same in this case. The trend has been going up steeply and 2 patterns are needed to reverse this trend.

[B]Remember this - when the price action is going up steeply then 2 candlestick patterns are usually needed to reverse the price action.[/B]

481

[B]I now make an announcement.

I have deliberately given a lot of material all at once to be chewed on.

On Wednesday, 28 May, I have a court case I have to deal with. It is an unpleasant matter involving an attack of racism on one of my indigenous friends.

This matter has been hanging over my head since the begin of this year and I now need some time to prepare the case.

As such, I will not post again until after the 28th.

But all readers are welcome to continue posting and I will answer all matters after that date when at last, I will be free of this matter.

Thanks in advance for your patience.[/B]

482

Thank you kindly. I am still re-reading the first 2 pages. I have a lot more to go before I catch up to today’s material.

I found the avatar/picture at a website about trading, etc and I scaled it down for here. It was either that or a picture of Invader Zim. lol

Keep up the great work.

483

Good luck with your court case Tymen. I hope the outcome is favourable for you.

Cheers.

484

I have been trying to follow this thread, but (another stupid question),have been reading grfw posts in numerical order which runs from the last page forward and from the bottom of each page upwards. It is a nuisance, and I have searched and clicked on every link that I thought might chamge the order to the normal way we read-front to back and top to bottom. I have not been able to find such controls. Can anyone advise me on this. Thanks

485

Pant… Gasp!.. Wheeze…

I have… gasp! … just finished … pant, pant … reading all … 2017 pages… wheeze! … of this thread …(just a sec, catching breath…)

OK, so there are only 47 pages … but all I can say is … WOW!!

What a masterpiece of candlestick clarification. I know & love candles, but have still learned a great deal here and especially a dynamic, yet fiendishly simple way of applying them to forex … which is a marraige made in heaven imo.

Great thanks and kudos to Tymen for authoring this and for working so hard to make it so … informative. You’re piling up a heap of good karma, kid :slight_smile: :slight_smile:

I’ve set up my charts and will start demo-ing today, let’s see how she acts when you take her out to sea… :smiley:

Thanks again Tymen, look forward to your return to the thread in June after what I hope is a successful resolution of that court case.

PS Jaquar, yeah that reading back to front is a … um, problematic … for a longer thread although I prefer it when you are caught up because all the new stuff is first.
There is an option at top left for “thread mode” not sure what that does and I also havn’t been able to find a way to reverse it, but after the first few pages, I got used to doing it Chinese style :smiley:

=========================

486

User cp > edit options > Thread Display Options > Thread Display Mode >

Read through, I have mine on Linear-Oldest First, but try all options.

487

Hello everybody, I’m new in the forum and must say that it’s a wonderful learning place, I have read so much good information in here that first of all I would like to thank you all for your effort.

I’m currently at page 20 of this tutorial, but I have two questions regarding a good trade I made last night. Because you might be focusing in a different subject right now, I would like to ask if it’s ok to post my questions in here or start a new thread. The questions are regarding an evening star and a gulfing pattern. Thank you tymen1, it has really helped me a lot. :slight_smile:

P.S. Good luck in the court.

488

truzpip
This thread is about candlesticks, so go ahead and ask away. :wink: