THE JOY OF CANDLESTICK TRADING - a Learning Experience

Beginner Questions
43

[B]I am now going to proceed to candlestick trading proper. To introduce this we look at a trade comparison - going short ie going down.[/B]

[B]Look at the below chart which displays a MACD and an evening star on the upper Bolinger band. (highlighted in blue).[/B]

[B]Point A is where you would enter using the standard MACD.
Point B is where you would enter using the evening star candlestick formation.[/B]


By tymen1 at 2008-03-05

[B]The difference is dramatic - a 30 pip difference. If you were scalping as I do then this indeed makes all the difference. With the MACD you are efectively missing out on one complete candle - and on some trades this might be the [U]only [/U]candle that goes down - it could go up from here on.

In other words, the trade could well be all over by the time the MACD says to enter.
With candlestick trading you can be in and out of this trade even before the MACD devotee gets started.

Time delay in indicators is a fact.[/B]

[B]Comments/rebukes/correctons invited.[/B]

44

Is a place that I can see Patterns of candle sticks and it says long or short for the patterns?

45

This is an excellent site previously posted by Tymen, so we can thank him for that.

Japanese Candlestick Charting Explained

46

Tymen,

Entries seem to be a problem for me. With the evening star do you enter at the low or close of the previous bar? Or how about waiting for a little more confirmation and enter 2-3 pips below the low or close? Iļæ½m not sure if that would be necessary though.

Do you like the 3 inside/outside, up/down patterns? I have found these to be very reliable, but again, I sometimes screw up the entry and get in too early and it goes against me or I get in too late and miss out on some pips.

Thanks for all your help,
Max

47

So is it possible to use candlestick trading for any time frame? Right now I got 3 windows openā€¦ 30min/1hr/4hr on the EUR/USD(I am really just getting the hang of MT4 atm).

Are some patterns going to be more reliable on a longer time period(I am just looking at the ā€˜highly reliableā€™ patterns from the website)?

Im learning lots, but its all hard to digest without seeing the patterns in action!

Thanks for the information!

48

To Max99 :

Entries will be a main focus starting after the next chart. I hope you will find it rewarding and solve your entry problems.

To Concept ;

Keep soldiering on! See if you can find any evening stars on your charts. Make sure they are on the upper Bolinger bands. You should see the price action dropping after the star ie going short.

It is best if the price action has been making a steady rise or walking the BB just before the star appears.

49

Before I start looking at entries I will once more show the importance of locating your pattern on the Bolinger bands.

On this chart we see an engulfing pattern. It is red and this means to trade short ie down.

[B]But the red engulfing pattern is not on the upper BB - and look what happens. The price action just continues to rise !![/B] [B]:mad: :stuck_out_tongue: :eek:[/B]


By tymen1 at 2008-03-06

50

So a few pages back you were gonna show us how to Post pictures and whatnotā€¦ I cant find it? lol I wanna see if I got the right idea of what you are talking aboutā€¦ seems to like I might have a bit of a evening star on my hands. Its on the upper band, just waiting for it to close and see where it leaves me.
If you wanna take a look ( I canā€™t post pics yetā€¦) Its on the 4hr EUR/USD ā€¦ 2008/03/07 0:00 atm.

Is that the right idea?

51

http://forums.babypips.com/newbie-island/10984-how-put-charts-thumbnails-onto-your-post-easy-way.html

52

Thank you Summerpip.

I hope you see the hyperlink, Concept, then you can see how to post the pictures.

Since our time zones are so different, I cannot easily look at what you are refering to. However, it you post the picture, then we can analyse it to your benefit.

[B]My next post will start on entries.[/B]

53

Well, my nest post is due but it is so late at night just now so I will post it tomorrow between trading.

54

[B]Here is my first post on entries.[/B]

The below chart shows a traditional entry with an evening star highlighted in light blue - there are 3 candles. The 4th candle is entered upon when it appears, the entry being at the bottom of the 3rd candle.

However, a good entry tactic would be to place the entry at the mid point of the 3rd candle. This often collects a few extra pips - enough to pay for your commission.

In the below chart this would not work so what you could do is to cut your trade lots in half. Set half of your trade at the bottom of the 3rd candle and half at the mid point of the 3rd candle.

Very often this makes for an excellent entry.

You can also choose to set all your lots at the mid point.

[B]In an even better tactic, I will show how to set the best possible entries using the Keltner channel in the next few posts.[/B]


By tymen1 at 2008-03-10

55

Hi Tymen1,
Just to make sure Iā€™m following correctly, so far, on basically any time frame, we are looking for evening stars on the upper BB bands for a short signal entry at about the mid point of the 3rd candleā€¦ and we are not using the MACD or any other indicators. Without meaning to get ahead of your lessons, would other reversal patterns work too?
Thanks :slight_smile:

56

[B]To Sweet Pip :[/B]

No other indicators at present. But after this post a 5 minute chart will also be introduced to time and correctly place entry.

the only other patterns I use are ;

The [U]engulfing [/U]pattern - long or short.

The [U]dark cloud[/U] cover - short.

The [U]piercing [/U]pattern - long ā€¦be careful here - trends can be very shortlived.

All good for scalping. For longer term some trend in the other direction is very good.

[B]Posts coming.[/B] :slight_smile: :slight_smile: :slight_smile:

57

Now take a look at the following [U]5 minute chart[/U]. It is a chart of the previous trade which was a 25 minute chart.

The idea of a 5 min chart is to get the best possible entry after the evening star pattern has formed.

When the 3 candles of the evening star are complete ([U]on the upper BB ![/U]!) and the 4th candle starts we then set up a 5 minute chart.

On the 5 min chart we set up the usual Bolinger bands.
We now also enter on it the [B]Keltner channel[/B].

The Keltner channel is a probability channel. Candles outside this channel are likely to stay outside and go up or down depending on the trend. The Keltner is based on Average True Range and, as such, is a volatility based indicator.
It is extremely sensitive to volatility and has [U]very little lag to it[/U].

Look at the following hyperlinks :

Capture Profits Using Bands And Channels

Trading the BSE using Keltner Channels

My [B]settings[/B] for this Keltner channel are a little unusual - [B]period 5, factor 1.[/B] This makes sure that most of the price action is inside the channel (intended).

The Keltner channel is shown shaded grey on the chart below. Further discussion on this post is below this chart >>>


By tymen1 at 2008-03-10

>>> As you can see, the middle BB is going down. The Keltner is also going down.
Price action is now going down and it is ,therefore, important to get in immediately ie trade short [U]right now[/U]. No time to waste.

The time is 15.05 on both the 25 and 5 min charts, and , if you are really quick, you would get in at the 71 pip mark shown on both these charts.

[B]These charts have taken a very long time to produce on Microsoft Paint. Emphasis has been given to clarity and ease of reading.[/B]

[U]The purpose of the Keltner channel will become clear as we go along.[/U]

For now, note that a 5 minute chart with a Keltner now gets used to get precise entries.

58

A truly great thread tymen1!!! Well worth anyones time. I have always been very interested in trading pure price action because I can see the inherent power in it. In fact, I also recognize that many of my trades benefit directly from the analysis you propose. Except I never knew what were the best patterns to focus on, etc. Now I do.

Keep up the great work! Iā€™m eagerly awaiting each update!

59

Hi again,
I donā€™t have a Keltner channel on my MT4 so from reading the articles at the links you provided, it says basically itā€™s a combination of 3 MAā€™s (one to high, one to low, and 1 median)ā€¦but what periodā€¦I presume 5 as yours above, and 1 would be Simple or Exponential?

In trying to compare the using the MAā€™s in this way to the ATR , I guess setting the MAā€™s so low it reduces the lag right down so then it is more sensitive to volatility?

Thanks :slight_smile:

60

Ok, I found myself a Keltner channel indicatorā€¦(a bit different from my mickey mouse rendition as above :wink: ) . Ready to continue now!

Oh and I love that investopedia siteā€¦tons of articles giving great examples of what, where, when & why one might want to use various indicators & tools! :slight_smile: :slight_smile:

61

To Daedalus :

Thank you so much for your encouragement. So few people are replying so that I think I might be wasting my time. But your post gives me the motivation to continue on. I do hope you can get something out of this thread. :slight_smile: :slight_smile: :slight_smile: :slight_smile:

62

Sorry Tymen, I thought the value of what you are doing was self evident and like the way you are approaching it. I read each installment with interest