Are candlesticks a good trade signal?

[athlonmank8]

Quote from wrbtrader:

There are many threads on this topic here at EliteTrader.com and some of the long time members that don't post here any more have done their own in-depth statistical analysis of Japanese Candlestick patterns including me (my former alias is NihabaAshi).

I've studied almost every published candlestick pattern in application to futures, exchange traded funds and forex currencies. In addition, I've taken it a few steps deeper via creating my own personal sub-groups and variations (e.g. there are +15 types of bullish white hammer patterns).

Summary:

* Do not use them all by themselves. Instead, use them as a secondary or confirmation signal.

* Do not use them to define the price action. Simply, you should already understand the price action (bullish, bearish or whatever) prior to the appearance of any candlestick pattern as an entry signal into what you already know about the price action.

* That understanding of the price action is called market context. Without it, Japanese Candlesticks or anything else won't work.

* Do not use computer codes for real trading (e.g. automated or mechanical systems). In fact, I've never met a profitable trader as such that exclusively uses Japanese Candlesticks all by themselves without input from another method or market context.

* Overall...a particular pattern doesn't work but there may be a sub-group or variation that does work within market context (e.g. only a few sub-groups of those +15 bullish white hammer patterns do work...everything else about that pattern is just crap).

* Trade management after entry of a Japanese Candlestick is key to the pattern success. There has not been one publish research were the trade management was adequate nor any research into the sub-groups or variations.

However, with the above said, if you feel the need to backtest via computer codes and discover what some of us already know (read the above)...reveal your understanding of the price action (market context) and your trade management after entry.

I get into a little of this in my own thread here at ET called Trading Hammers (revisited) @ http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880

In addition, here's a recent discussion with a backtester about the importance of market context in my discussions with a backtester name guruji that has publish some of his testing results @ http://www.traderslaboratory.com/forums/f34/do-candlesticks-work-7900.html

Mark

Bravo!

 

[ttowntrader]

The problem with these academics, is that they are analyzing out of context data points and patterns, which are meaningless the moment you remove them from the context. Any trader can look at price action or a candlestick and understand what it means as it relates to buy and selling pressure for a specific time period for a specific equity based upon years of experience. A computer does not know how to interpret the meaning thus strictly trading off of candlestick pattern is most likely a mediocre strategy.

 

[wickcity]

Just curious, WRB,

You posted this------- * Do not use them all by themselves. Instead, use them as a secondary or confirmation signal.

My question for you, you mention to use them as secondary or confirmation signal. For your own personal training, what do you use for you PRIMARY signal?

Thanks

Quote from wrbtrader:

There are many threads on this topic here at EliteTrader.com and some of the long time members that don't post here any more have done their own in-depth statistical analysis of Japanese Candlestick patterns including me (my former alias is NihabaAshi).

I've studied almost every published candlestick pattern in application to futures, exchange traded funds and forex currencies. In addition, I've taken it a few steps deeper via creating my own personal sub-groups and variations (e.g. there are +15 types of bullish white hammer patterns).

Summary:

* Do not use them all by themselves. Instead, use them as a secondary or confirmation signal.

* Do not use them to define the price action. Simply, you should already understand the price action (bullish, bearish or whatever) prior to the appearance of any candlestick pattern as an entry signal into what you already know about the price action.

* That understanding of the price action is called market context. Without it, Japanese Candlesticks or anything else won't work.

* Do not use computer codes for real trading (e.g. automated or mechanical systems). In fact, I've never met a profitable trader as such that exclusively uses Japanese Candlesticks all by themselves without input from another method or market context.

* Overall...a particular pattern doesn't work but there may be a sub-group or variation that does work within market context (e.g. only a few sub-groups of those +15 bullish white hammer patterns do work...everything else about that pattern is just crap).

* Trade management after entry of a Japanese Candlestick is key to the pattern success. There has not been one publish research were the trade management was adequate nor any research into the sub-groups or variations.

However, with the above said, if you feel the need to backtest via computer codes and discover what some of us already know (read the above)...reveal your understanding of the price action (market context) and your trade management after entry.

I get into a little of this in my own thread here at ET called Trading Hammers (revisited) @ http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880

In addition, here's a recent discussion with a backtester about the importance of market context in my discussions with a backtester name guruji that has publish some of his testing results @ http://www.traderslaboratory.com/forums/f34/do-candlesticks-work-7900.html

Mark

 

[trend2009]

I met a guy who exclusively uses candlesticks with high precision. it is apparent candlestick works, but like any strategy in trading, very few can grasp how it works, otherwise, the market would not exist.

regarding academic paper, if the author finds out a candlestick pattern that works, do you think he is foolish enough to publish it? that is why it is nonsense to use academic research to disprove anything relating to trade strategies.

Quote from wrbtrader:

There are many threads on this topic here at EliteTrader.com and some of the long time members that don't post here any more have done their own in-depth statistical analysis of Japanese Candlestick patterns including me (my former alias is NihabaAshi).

I've studied almost every published candlestick pattern in application to futures, exchange traded funds and forex currencies. In addition, I've taken it a few steps deeper via creating my own personal sub-groups and variations (e.g. there are +15 types of bullish white hammer patterns).

Summary:

* Do not use them all by themselves. Instead, use them as a secondary or confirmation signal.

* Do not use them to define the price action. Simply, you should already understand the price action (bullish, bearish or whatever) prior to the appearance of any candlestick pattern as an entry signal into what you already know about the price action.

* That understanding of the price action is called market context. Without it, Japanese Candlesticks or anything else won't work.

* Do not use computer codes for real trading (e.g. automated or mechanical systems). In fact, I've never met a profitable trader as such that exclusively uses Japanese Candlesticks all by themselves without input from another method or market context.

* Overall...a particular pattern doesn't work but there may be a sub-group or variation that does work within market context (e.g. only a few sub-groups of those +15 bullish white hammer patterns do work...everything else about that pattern is just crap).

* Trade management after entry of a Japanese Candlestick is key to the pattern success. There has not been one publish research were the trade management was adequate nor any research into the sub-groups or variations.

However, with the above said, if you feel the need to backtest via computer codes and discover what some of us already know (read the above)...reveal your understanding of the price action (market context) and your trade management after entry.

I get into a little of this in my own thread here at ET called Trading Hammers (revisited) @ http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880

In addition, here's a recent discussion with a backtester about the importance of market context in my discussions with a backtester name guruji that has publish some of his testing results @ http://www.traderslaboratory.com/forums/f34/do-candlesticks-work-7900.html

Mark

 

[wrbtrader]

Quote from wickcity:

Just curious, WRB,

You posted this------- * Do not use them all by themselves. Instead, use them as a secondary or confirmation signal.

My question for you, you mention to use them as secondary or confirmation signal. For your own personal training, what do you use for you PRIMARY signal?

Thanks

My primary trading approach is the market context. Thus, it's not a trade signal. Instead, it involves key market events (e.g. global economics, economic report times, FED/ECB info, breaking news, open/close times of key markets) along with intermarket analysis, volatility analysis and supply/demand analysis.

Without the above...I ignore any trade signal I get because the odds are very high I won't be profitable if I take the trade without the market context.

Further, market context is still just part of the puzzle. The other part is the trading plan itself. That consists of many variables such as market experience, discipline, stress management, money management, position size management, trade management, proper capitalization, proper broker platform, proper computer equipment, proper at home/office trade environment and so on.

These are all critical pieces of the puzzle that must be in place to give yourself a chance at being profitable prior to the appearance of any trade signals. Thus, those that say you can be a profitable trader via trade signals alone...that's b.s. because the markets are too complex for such in today's trading environment. Simply, they are profitable via other variables as mentioned above while their trade signals is just part of that puzzle they've been able to put together.

Therefore, I use Japanese Candlesticks as secondary as I do all my other types of trade signals...market context is primary for me as a price action only trader (no indicators).

My point is that if someone tells you he/she is profitable and you ask them what trade signal they are using...you're asking the wrong question.

Quote from trend2009:

I met a guy who exclusively uses candlesticks with high precision. it is apparent candlestick works, but like any strategy in trading, very few can grasp how it works, otherwise, the market would not exist...

I don't know what your definition is of the word exclusively but I hope you're not implying this person you know does not have money management, market experience, discipline and all those other variables that's critical to successful trading as mentioned above in my other reply.

Simply, if you're not implying such...he's not exclusively using Japanese Candlesticks unless you meant to say it's the only type of trade signal he's using while he has in place all or most of those other variables I've mentioned.

Also, I hope you meant by the word met that you've seen such via your own two eyes in person or have seen verifiable proof accompany with detail Japanese Candlestick pattern description for each trade within the verifiable proof.

Don't believe the hype because it ain't that simple.

Mark