THE JOY OF CANDLESTICK TRADING - a Learning Experience

Beginner Questions
997

As [B]FXCaribbean[/B] [B]has said, it would be better to post long questions on [/B][B]the [/B][B]UMS live[/B] [B]and [/B][B]UML live[/B] [B]threads he has created.[/B]

[B]This leaves this thread alone to do its intended purpose - it is a teaching thread.[/B]
Many times I post a whole string of charts concerning a particular trade.
It is best that they are not interupted.

Aren’t your comments sometimes biased on results ? I mean, aren’t you sometimes result oriented ?

Sometimes my posts are just straight theory.
Then it may look like the results are biased.
But I am teaching.

Other times I take account of human frailty.

But when you talked about the trumpet setting, you considered the lower band to say that the “trumpet” setting was very bad, assuming the lower BB was going down

Can you dig up the quote for me? - I know it is in there but I will let you do the work! :smiley:
The explanation is very simple, but I need the quote.

I’m not sure to have understood why this wasn’t a good trade except for the fact that the higher BB is going up (isn’t it almost always like that when you find an evening star pattern ?)

[B]FXCaribbean[/B] has given a pretty good answer.

The fact is that with evening stars the BB is NOT almost always going up!!

A lot of times the BB is going level or even down!!
The time to avoid the evening star is when the BB is rising extremely rapidly after the bands have narrowed, (a squeeze), and the price action is walking the bands like there is no tomorrow!

You mean that the 3 green soldiers BEFORE the evening star pattern are a bullish pattern, so we should keep that in mind and be cautious about the evening star short trade ??

Yes!!

Whenever you see a breakout occurring (the BB is like a trumpet), [B]and [/B]the price action is starting to walk the upper BB and you see 3 green soldiers, then you trade that pattern because it is the one for the job.

Then, of course, you set a stop loss and you make it a trailing stop loss so that you lock in profits.
If an evening star occurs, you may actually hit your trailing stop loss.
If not, you just keep going!! :slight_smile:

998

The question of an evening star with the Bollinger band “trumpeting” (correctly called a [U]breakout[/U]) has come up repeatedly recently.

[B]Therefore, for the sake of clarity, I will go over it again.[/B]

Here are two images.
The first is theory.
The second, an actual case >>>


By tymen1 at 2008-04-22


By tymen1 at 2008-04-22

As you can see in the actual case, the lower Bollinger is not always going down.
It starts to turn around and then goes up.
This is a product of the mathematics - an operation called standard deviation.
Depending on the exact way the price action goes up - the lower BB may go down first or follow the upper band in going up.

It is really irrelevant, unless you fully understand the mathematics.

The real matters to look at when considering an evening star in this case are :

  1. Is the upper BB breakout coming from a narrow BB? (look at the left of the chart)
  2. Is the upper BB now rising extremely rapidly?
  3. Is the price action now walking this rising upper BB?
  4. Is therefore, an obvious trend visible?
  5. When the evening star appears, does the upper BB just keep rising without any kinks in it?
  6. Are there more red candles in the trend besides the one of the evening star?
  7. Does the price action just keep going up even though there are some red candles?

If the answer to each of these questions is “yes”, then this trade is a very risky one to take.
The very best you can expect, is for the price action to go level, that is, to “range trade”.
A second short candlestick pattern is now needed to bring the level price action down.

999

So tymen1, you will not take this trade. You will wait for another evening star to appear then enter a position. Sorry for interrupting your engulfing pattern lesson with my question.:o

1000

[B]Correct.[/B]

If you do enter this trade, then you will make very few, if any pips, even if you are very skilled in using the [B]UM[/B].
Examine the chart carefully after the evening star. You will see that what I am saying is true.

[U]Yes, you wait for another shorting pattern to appear[/U] - such as another evening star, or a short engulfer, or a dark cloud.

[U]But much better still[/U], we note this breakout going [U]long [/U]from the beginning.
We note that the Bollinger bands were very narrow at the beginning.

Then we simply wait for 3 green candles and trade long (up) with the 3 green soldiers pattern (3 white soldiers).
This is a vastly superior tactic given the direction of the price action.

1001

[B]I now wish to go back to that engulfer trade that we looked at and analyse some profit taking.[/B]

Firstly, a reminder of the trade >>>


By tymen1 at 2008-07-24

The long engulfing pattern is in the middle of the chart (green) on the lower BB.
The lowest wick value is 84 (103.84)

At the end of the trade 77 pips were made in 140 minute with the [B]UM[/B].

But what if we used a simpler approach that would be suitable for total candlestick beginners?
Lets have a look…
[U]
Simple one amount trading[/U]

If we had entered this trade with only 1 amount at the open (no KC chart) and closed at the very top, we would have made [B]40 pips[/B].
Entry was 97 (103.97)
Exit at very top was 37 (104.37)

Now a stop loss would be placed 3 pips below the lower wick at 81 (103.81)
Entry - stop loss is 97-81 = 16 pips
Profit = 40 pips given above.

Therefore, [B]risk/reward [/B]is 16:40 = [B]1:2.5[/B]

[U]Improve using the KC chart.[/U]

If we traded as above but entered using the KC method, we would have made [B]43 pips[/B].

[U]Improve using multiple amounts.[/U]

If we traded as above (using KC), but entered 2 amounts and closed 1 amount at 10 pips, we would have made [B]53 pips[/B].

[U]Improve using the [B]UM[/B][/U]

We would have made [B]77 pips[/B] as stated above.
The [U]worst [/U]risk/reward in this case…copied from post #925 on page 93…

So [B]risk/reward[/B] at worst = 33/60
Which is approx [B]1:2[/B]
Which is excellent.

So you can now see the progressive improvement in pips gain culminating in the [B]UM[/B].

We improved the pip gain from 40 to 77 - a 93% improvement.
And the risk/reward ratio changed only from 1:2.5 to 1:2, a 20% change.

[U]The [B]UM [/B]provides a real alternative to long term trading whether thro candlesticks or indicator trading.[/U]

[B]So…

Who would like to change to long term trading?[/B]

1002

Someone is about to advance up.:slight_smile:

Hmmm… Who could that be?:smiley:

Do you have a special post planned?:p:)

1003

Yep!! :slight_smile: :smiley:

I have been looking forward to this promotion.

I notice that this thread has reached 100 pages simultaneously.

[B]In accordance with becoming an honourary member, I have decided to put a face to my posts[/B], just like Dale Paterson.
I hope the Tonymand may do the same at some point.

The next persons to become FX Honourary members are [B]Rhodytrader[/B], who is just 2 posts away, and you, [B]Mytwopips[/B]! :slight_smile:

[B]Daydreamer65 [/B]is also on the way.
He has been here a long time.

[B]Now I will celebrate[/B] >>>


By tymen1 at 2008-03-28

1004

Congratulations Tymen!

1005

Yep congratulations !

Please to meet you :slight_smile:

1006

Thank you [B]VulcanClassic [/B]and [B]FXCaribbean[/B], my two regular faithfuls!! :slight_smile: :slight_smile:

In further testing of the [B]UM[/B], I notice something in “pips first” trades with the GFT program.
When the 1st amount is entered, and then the 2nd amount entered when the 1st is into 5 pips profit, something happens with the GFT program.

What happens is that the program just averages the 2 entries and makes it difficult to position and shift your trailing stop loss in correct sequence.

[U]Therefore, I will make an alteration to the [B]UM [/B]procedure for pips first trades.[/U]
This alteration will also be a pleasant simplification for these opening trades so that they will be [U]much easier to manage[/U].

1007

Congrats tymen1, you really deserved the title. You really contributed a lot to this thread and forum. Hope to learn more from you.:slight_smile:

1008

Well what can i say other than this has been one of the most informative threads i have read on the World Wide Web. It took me a week to get through all the well laid out work in this thread, but it was definitely worth it. Thank you Tymen you have not just pushed me in the right direction, you have strapped a rocket to my back and sent me on my way.

Ill stop rambling now and i look forward to learning a lot more and participating in the exercises. Thanks again.

Damo

P.S I also live in Perth, the best city in the world :smiley:

1009

Hello Damo and welcome to this thread.

Thank you for the kind compliments.
I try hard to please. :slight_smile:

Now since you also live in Perth, which suburb do you live in?
I wish to add you to the following thread, which I think you will find rewarding reading :

http://forums.babypips.com/newbie-island/11361-3-members-perth-now-7-members-perth-western-australia.html

1010

Thank you[B] Ray_1[/B]

As a regular on this thread you deserve the best sevice.
I trust that you will continue to gain material from this thread that will make you a gun trader!! :slight_smile: :slight_smile:

You can look forward to a simplification of the [B]UM [/B]ahead!!

1011

Hi tymen1,
I like to ask you a question which you may had answer before. When an UM pattern appears before a major news release will you take it? For me, I dun take any pattern before a major news release. I also dun trade on Fridays when NFP will be released. Hope to hear your point of view. :slight_smile:

1012

Congrats Tymen!!!:):slight_smile:

p.s. That’s not a pic of Dale, it’s Wilder, the author of the book they discuss.

1013

Thank you [B]Mytwopips[/B]!!

May the pips be with you. :slight_smile:
And more than just two!! :smiley:

p.s. That’s not a pic of Dale, it’s Wilder, the author of the book they discuss

Really!!?
Wow!!
That had me fooled.

Hmmmmm…we really need an avatar of Dale!! :slight_smile:

Still, I stand by my posts with integrity and, therefore, for better or for worse, post an avatar of me!! :smiley:

1014

I cannot say that I have ever had trouble with news releases.

The candlestick patterns are very correct, successful and effective in their predictions of either short or long.

We are further improving that effectiveness by trading on the Bollinger bands.

As I see it, the news release is built-in or included in the resulting price action and is masked by it.
So, therefore, you cannot see the news price action unless you know that a news release is going on.

It is, therefore, logical to assume that the news release price action is included into the candlestick price action.

I think a lot of the time, the news releases give the candlesick pattern a great boost, giving you a lot of extra pips.

If the two are going in opposite directions, eg a short pattern and a news release that forces a long price action, then your stop losses are activated and you are totally protected.

But, after studying umpteen charts, I see candlestick patterns nearly always successful, but I can never see obvious news release price action in them!!
If it is there, you would have to show me!!

[B]So, in conclusion, I cannot see what the problem is.[/B]

1015

Better:)

I may post one of myself too for a bit. Then I will return with a more updated pic of my boy.

1016

Your boy looks like he just won 100 pips.:slight_smile: