Candlesticks & stuff

A few years back I remember there was stand alone software that detected candle patterns based on fuzzy logic but I don’t think it is available anymore. Today there are also some add-ins for other programs based on fuzzy. So I don’t think there is a problem coding a backtesting of candle patterns.

gummy very nice website :)
 
It appears that every so often the discussion about candles an there validity comes up. It always goes the same way, some believing that they work and some believing that they dont. I for one believe that they work, but that is neither here nor there. If a person finds value in using candles, so be it. It doesn't mean that candle patterns are the holy grail, because they are not. In the same light, if someone fails while using candle patterns doesn't mean that they dont work. It means that the one person that failed at them, just couldn't get them to work for them-and thats all right. I found pivot points and oscillators useless. Does this mean that they dont work- absolutely not! I just couldn't get them to work for me

This discussion on the candle patterns is never ending. If a person can find value from them great, if not move on.
 
Quote from brownsfan019:

tao - I disagree completely. Candlesticks cannot be easily programmed, so I am not sure where you heard they were easy to program. Yes, you can easily code a 'hammer' but a hammer in and of itself is not a legit buy/sell signal. Plus, candles, esp intraday are not a perfect science. So if your 'coded hammer' does not trigger, that does not mean a great hammer is not staring you in the face. The 'candlestick guru' Steve Nison just recently designed a screening software package that takes into account a variety of factors. Outside of this, I have not seen anything that truly looks at candles and how they are supposed to be traded. And this software he now has only does end of day as intraday is not available (at least not yet).

As for this whole backtesting thing, by your theory, if it can backtest fine, then it should be great in real-time. If that was the case, every trader here would be making millions with their great, curve fitted, backtested systems. I love how some traders think something must backtest great or it's not worth looking at, yet the majority of these wonderful back tested programs fail in real-time. Maybe not right away, but eventually they almost always fail. Knowing that, why would you put so much emphasis on a computer generated backtesting?

Oh yeah, there's no 'placebo' effect when trading with candlesticks. Once learned properly, candles can tell you a lot of what is going on in the markets.
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I totally disagree with you:)

Judging from your response,I would say that there isnt much of a difference between the application of Elliot Wave vs candlesticks.Neither one shows any statistical edge in backtesting,yet they are great tools...

Does that make any sense to you???

People who are successful trading with Candles,Gann,Elliot,PnF are talented discretionary traders.They more than likely have an inherent systematic approach to trading the markets,understand risk reward and money management.

I do not believe the market unfolds in a fibbonacci sequence,nor do I beieve in the teachings of gann.Bit tjhere is no doubt in my mind that there are some extremely successful people who employ those principles as their major tool...

Let me ask you,why is it Thomas Bulkowski can backtest "edwards and magee" western type chart formations with success,yet candlestick formations can not be "easily" programmed???

I am in no way dicrediting candlesticks as a very powerful discretionary tool.But any time you have a method where if you supply to 10 different traders and have 10 different outcomes,it is the trader who validates the tool,not the other way around.That is my point....
 
tao - I see what you are saying and we will agree to disagree. I think it can be argued there is discretion in ANY trading system, incl candles.
 
This discussion is a mystery (to me). :(

Can a computer be be programmed to display candlesticks?
Yes.
YOU CAN HARD CODE CANDLESTICK FORMATIONS, BUT IF YOUR EXACT PARAMETERS ARE NOT MET, YOU MAY NOT SEE A LEGIT CANDLE SIGNAL IN FRONT OF YOU. ESPECIALLY IN INTRADAY TRADING, THEY ARE NOT GOING TO BE PERFECT PATTERNS. THAT'S MY POINT.

Can a computer be programmed to recognize particular patterns, like hammers, dojis, etc.
Yes.
SEE ABOVE.

Can a computer be programmed to generate buy/sell signals?
Yes.
OBVIOUSLY YES.

Can the buy/sell signals be backtested?
Yes.
CERTAIN THINGS CAN BE BACKTESTED. CANDLES ARE DIFFICULT TO BACKTEST BY JUST RUNNING A COMPUTER PROGRAM. SEE MY OTHER POST AS TO WHY.

Are the buy/sell signals any good?
Sometimes yes ... sometimes no. :D
THIS IS PROBABLY THE MOST IMPORTANT PART - SOMETIMES THEY WORK, SOMETIMES THEY DON'T.

In the end, I believe to fully understand and utilize candlesticks, you have to really study them. Just going to stockcharts.com and learning what a hammer looks like does not work in backtesting or real-time.
 
Quote from brownsfan019:

tao - I see what you are saying and we will agree to disagree. I think it can be argued there is discretion in ANY trading system, incl candles.
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I think there are two sets of traders.Discretionary and pure system traders.the pure system traders,be it directional or mean reversion do not trade their system.They may change it,but they rarely if ever overide it..And i am simplifying

The other campers use any tool that they "believe" increases return/minimises risk.The key word is believe.As they do not really have a viable way of tracking the statistical significance of the tools applied,one never really knows much more than the bottom line and its associated performance measures.Its a holistic way of trading,but success is largely due to the innate/developed talents of the trader..

I taught various martial arts,and there are certain techniques which by and large do not work or next to impossible to pull off.Yet,the supremely physically gifted athlete can pull it off and make it work.Is it the technique or the athlete??

With all this said,I am studying candlesticks,know full well they do not work in isolation,but feel there may be value...Go figure
 
Quote from brownsfan019:

tao - good points.

Good luck in your candlestick studies. I would recommend Steve Nison materials.
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I have the "latest" book by Greg Morris,i have Stephen Bigelows book which may be hype,but has some interesting points...

As far as Nisson,any one book you reccomend over the others??

thanks
 
<b>Browns(Bernie Kosar)Fan</b> (he was a Dolphin, too) hit it right on when explaining visual backtest concept of trade method tools.

I've personally written hundreds of mechanical systems, and only two have ever walked forward thru several years' time with profitable performance. Both are inferior to discretionary trading, so I don't actively work them.

Years of system-writing = testing experience likewise taught me (indirectly) how to test discretionary tools backward in time. Simple mock-trading with complete self-honesty (otherwise cheating oneself) will prove pattern concepts valid or not.

In other words, many if not most discretionary methods cannot be coded to system language. There are varying degrees of visual identification = confirmation to make a pattern confirmed.

Remember... all mechanical systems are merely one step further refined method concepts. Taking a discretionary method and assigning black & white entry, exit and stop-management rules is the only difference between a method and system. Sometimes, there is no way to translate ideal trade entry signal setups in system language.

Hope this helps :>)
Austin
 
Quote from brownsfan019:

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As for this whole backtesting thing, by your theory, if it can backtest fine, then it should be great in real-time. If that was the case, every trader here would be making millions with their great, curve fitted, backtested systems. I love how some traders think something must backtest great or it's not worth looking at, yet the majority of these wonderful back tested programs fail in real-time. Maybe not right away, but eventually they almost always fail. Knowing that, why would you put so much emphasis on a computer generated backtesting?

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This illustrates a fundamental misunderstanding of what backtesting is all about.

The point of a *valid* backtest is not to "prove" a trading system so much as to attempt to disprove it. Just as a science is a series of attempts to falsify theories of a particular category, backtesting is an attempt to disprove a given ts. If the ts isn't disproved in the backtest, it merits further study with paper trading, real-world trading or whatever the tester determines should come next.

A valid backtest is just like a scientific experiment. Most traders have bogus backtest results because they have no idea what the statistically significant minimum sample size should be, nor what the constraints (realistic slippage, realistic transaction fees) should be.

Perhaps most importantly, every valid scientific experiment has a control group. The control group for a backtest is the buy-and-hold scenario. Ask yourself the last time you saw a backtest where a comparison with the buy-and-hold results was actually presented, then you can ask yourself whether any future backtest you see is determinative and what the tester is trying to hide by not making that comparison (which is almost always the case btw). :cool:
 
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