THE JOY OF CANDLESTICK TRADING - Part 2

[tymen1]

If you are trading a long pattern for example a Morning Doji Star.

The starc bands are heading up and we get our entry at the middle of the starc bands and everything is looking good for a few candles but then the bands turn level and then start heading downwards.

Would you close the trade early and wait for the bands to start heading upwards again before getting back in the trade or would you just stay in the trade and hope it reverses itself and not hit the stoploss.

The aim here is to do your long entry when the Starc bands are in a good position.

What is a good position?

Well, if the Starc bands were right close to the upper Bollinger band, then you know that you do not have much more “up” to go.
So in that case you would not enter long but, rather, wait.

Now if the Starc bands were near or closer to the lower Bollinger band, then a long entry would be a good idea.
The Starc has some distance to travel up and you will then profit from the rise.
If the Starc bands were to fall suddenly, they would not fall far before reaching the lower Bollinger bands and changing direction to go up again.

[B]You can see now why the Bollinger bands are so important on the 5 minute Starc band chart.[/B]

So to place a long, we do so closer to the lower BB than the upper BB.
That way, the probabilities are in our favour, that the Starc bands, and hence the price action, will go up rather than down.

[tymen1]

Yes I know that, my question is what was the candlestick pattern in the main timeframe.
Regards!

Ahhh!

I understand your question now!!

3 rosellas?

[B]NO!![/B]

The pattern was actually an evening star pattern and the rapid drop you see on this 5 minute chart actually occurred 5 candles after the evening star formed.
Each candle on the main chart was 35 minutes, that is, the main chart was a 35 minute chart.

[B]I will be using this main chart in the next few posts to show how to set a profit target.[/B]

[tymen1]

I think this also depends on whether on the main chart we are still under 7 candles away from the reversal/continuation pattern. After 7 candles, the pattern’s validity basically expires. I welcome any correction.

Excellent answer [B]Trem[/B]!!

[tymen1]

There are so many Candlestick patterns but people know only some of them …

That patterns I use here are ones where you can see confirmation.
They are the 2/3 candle patterns where the 2nd or 3rd candle serves to confirm the suspected pattern and also to confirm the resulting price action.

They are also patterns that signal a reversal in price action.

Single candle patterns such as falling star and hammer occur all over the charts, but basically do not reveal any changes in price action.

There is no need to know all the patterns but only significant ones that are very reliable.
I trade powerful ones such as evening star, morning doji star, dark cloud cover, long and short engulfing pattern and piercing pattern.

Further to this, since they are reversal patterns, they are traded when located on the upper or lower Bollinger bands to give added reliability.

[U]This is more than enough to keep your trading very busy.[/U]

Each one of these patterns have some qualities and they are useful as well but you have to know about them first…

Since we choose only the above, we specialize in knowing all about them.
I have looked at your website, it is inadequate and specializes in equities trading where gaps are common.

Apart from the books, such as Japanese Candlestick Charting Techniques and Beyond Candlesticks, both by Steve Nison and Louise Bedford’s “The Secret of Candlestick Charting”, the very best website for candlesticks that I know is…

Japanese Candlestick Charting Explained

This website is very thorough in that it groups the candle patterns, classifies them according to reliability, gives forex and equities versions, and describes the actions of each candle in full.

[tymen1]

[B]While I am checking on the Starc bands simplification, which promises to be wonderful, I will show how we can set profit targets.[/B]

Thses profit targets are especially for the Basic and Intermediate levels, where the trading is done using the main charts.

In the Advanced level, these profit targets give a signal as to when to stop trading on the Starc bands.

[tymen1]

[B]There are 3 places where you can set a profit target…[/B]

1. At the mid Bollinger band.

2. At the [U]opposite[/U] Bollinger band - depending on whether your pattern is on the upper or lower BB.

3)In between these extremes using the Fibonacci ratios.

[U]The first two are easy to understand - here is how we do the 3rd : [/U]

Have a look at the following 35 minute, main chart of GBP/USD.

This is the chart that was asked about earlier re the 3 red rosellas.

>>>

By tymen1 at 2009-03-02

Here we have an evening star pattern.
This pattern tells us to go short.

In setting the Fibonacci target, we do a follows :

With the Fibonacci drawing tool on your toolbar, you set one Fibonacci point at the entry of your trade.
You can see that is a small black dot on the very next (green) candle on the chart.

Then set the other point on the [U]opposite [/U]Bollinger band (in this case, the lower band.).
This is shown by the pink arrow.

The small pink oval then shows the [U]temporary [/U]profit target.

[tymen1]

Why a [U]temporary [/U]profit target??

Well, look at the chart below where the trade has progressed further >>>

By tymen1 at 2009-03-02

The lower Bollinger band has changed its position along with the progressing price action.

Hence the lower Fibonacci point is moved to stay on the Bollinger band.
It is moved from 240 to 267
As it is moved, all the other points move along with it.

The target in the pink oval has changed, from 345 to 364

You can see this on the chart.

[B]Lets progress further with the price action.[/B]

[tymen1]

[B]In this chart we go a step further[/B] >>>

By tymen1 at 2009-03-02

The price action here has fallen dramatically, giving large profit to our short trade.

The lower Bollinger band moves again, and the Fibonacci point on this band is moved also, this time to 294

Our profit target, the pink oval is shown this time by the horizontal arrow and the pink horizontal line.
This value is now 380

We also notice that the price action has stopped falling at this point.

[tymen1]

B]Lets now see what the end result is[/B] >>>

By tymen1 at 2009-03-02

In this chart the last green candle had a lower wick only fractionally lower than the long red candle.

Thus the Fibonacci technique explained here was a good one to get nearly all of the profit.
So if you see the price action for your target profit going past the Bollinger mid band - then use the Fibonacci tool to set a greater target profit.

[B]The long red candle was the region in which the huge price drop occurred in the 5 minute starc chart that Wrtm_19 and Trem were asking about.[/B]

[tymen1]

No questions at this stage I see.

Stand by for a revision and simplification for the use of the Starc bands.

[wrtm_19]

Hi Tymen!, I know this is a little bit off topic but I’d like to know your opinion in the next pattern. Thanks!

[wrtm_19]

Ok and now I post an entry I just did with the starc bands, let’s see how it goes. It’s on the eur/usd main chart timeframe is 30minutes. I’ll try to post the result.

Do you guys think it’ll work??

[o990l6mh]

Hi Tymen!

May I ask if you’ve come across Donchian channels in your research? If so, what led you to choose Bollinger bands over Donchian?

As I understand it Donchian channels are quite similar in construction, with the difference that they are placed based on the high-low range instead of being based on standard deviation.

Regards

[wrtm_19]

So far candles have gone further up the upper starc band…

[wrtm_19]

Aaaand it finally drops down and touches the .45 factor lower starc band. If I close my trade at this point it is a 2 pips profit. I will wait and expect it to drop to the 1 factor lower starc band for a little bit more profit.

Is this ok that I put this examples here???

[wrtm_19]

And what a loss!!! What did I d0 wrong?? Well that’s why I post this trade in order to get your opinions and see what you guys think.

I attach the 5 minute chart and the 30 and 35 ones in order for you to see the results.

[tymen1]

Hi Tymen!, I know this is a little bit off topic but I’d like to know your opinion in the next pattern. Thanks!

[U]Never off topic!![/U]

Re post #111

[B]Yikes!![/B] :eek: :eek: :eek:

An evening star on an upper Bollinger band breakout and a trend roaring upwards.

[B]Do not trade!![/B] :eek:

[tymen1]

Ok and now I post an entry I just did with the starc bands, let’s see how it goes. It’s on the eur/usd main chart timeframe is 30minutes. I’ll try to post the result.

Do you guys think it’ll work??

OK, I am lost here.

Which is the main chart and which is the 5 min starc chart?

Are they related to the chart in post #111?

[tymen1]

Hi Tymen!

May I ask if you’ve come across Donchian channels in your research? If so, what led you to choose Bollinger bands over Donchian?

Yes, indeed!!

Donchian channels do not exist on my Dealbook charting platform.

The Bollinger bands are proven, I am familiar with them and every charting platform has them.

Donchian channels do not seem to be greatly different in operation to Starc bands.

Donchian, Keltner and Starc bands are all probability envelopes.

[wrtm_19]

Hi Tymen!

Post number 111 is a 55 minutes chart of usd/cad pair, it’s not related to the other ones.

The other examples were posted live while I was trading and were on the eur�usd pair, they’re all related.

Thanks for your feedback Tymen!

Regards!