do candle sticks really work?

Quote from learner2007:

>NihabaAshi

No, I do not use candlestick patterns in my TA. And I am
of the opinion that one should use what he finds best for
him. So nothing against that form of TA whatsoever.

I was surprised to find how popular candlesticks had
become in the U.S. many years ago. As I remember it
was around the time that the Japanese discovered
W.D. Gann!!

If you would go to a bookstore in Tokyo, out of the
hundreds of stock market books you would find only
a few pages in selected books covering candlestick
patterns. I have been a member of the Japan Technical
Analysts Association since 1979 and candlesticks are
never a topic discussed. The current fad here seems to be
indicators, moving averages, Ichimoku, Bollinger Bands,
Elliott etc.
Also, Renko, Kagi Ashi and most of the other charts that
were developed here seem to have died out along with
chandlesticks.
More...

I think Japanese Candlesticks are better marketed in North America, included in a few popular programs (e.g. TradeStation) along with the fact there's more retail traders...

Explains the growth of Japanese Candlesticks or any other form of Technical Analysis.

Also, as someone has said in this thread...

There are sources that show test results that Japanese Candlestick pattern signals are not reliable.

Just the same, there are sources that show test results that Japanese Candlestick pattern signals are reliable.

That can only imply everybody has their own interpretation of a particular candlestick pattern and their own trade management rules after entry to show results different.

For example, I once saw a source that has Bullish Engulfing patterns on the S&P 500 to be 72% reliable.

In contrast, I've seen other sources that has the same pattern via the name on the S&P 500 to be between 48% - 55% reliable.

Yet, my own personal documentation (code testing and manual testing) of the Bullish Engulfing pattern reveals 9 sub-group patterns and the generic (stuff you see in typical books) version is not reliable.

Unless we have access to the specific code or rules from entry to exit along with detail info of each pattern signal (time, price, date and intervals)...

It's tough to tell considering these publish sources usually do not reveal all the information to allow us to inspect the price action involving each trade signal.

Simply, for me at least, I need much more info than just numbers...

I need to have access to the information that occur in the trading day for each pattern signal.

Without that info, I'm unable to understand the price action the signal occurred within.

Without that info, it allows the candlestick pattern signal or any other pattern signal to define the price action...

Too common among the market approach of losing traders and/or lazy backtesters.

Mark
 
Academic studies on trading are worse than useless. Dismiss whatever they say, regardless of whether positive or negative. Gather knowledge from traders on the tools of the job, then learn to trade by trading.

Would you even bother to read an academic study on how to play football well?
 
Quote from tomorton:

Academic studies on trading are worse than useless. Dismiss whatever they say, regardless of whether positive or negative. Gather knowledge from traders on the tools of the job, then learn to trade by trading.

Would you even bother to read an academic study on how to play football well?
More...

I think you are over-reacting. Theoretical studies are very useful. Early theoretical studies on technical analysis confirmed what everybody knows, i.e. the fact that 95% of traders lose money.

You laugh at academicians but I tell you, they laugh back at you because they believe that your "edge" is pure luck not due to technical analysis skills and you will run out of it soon.

Needless to mention the advancements in sports equipment and athlete performance due to theoretical studies.

But I agree with you that trading is empirical knowledge. But that is not the point. You can avoid costly mistakes by doing theoretical studies.

Ron
 
Quote from ronblack:

I think you are over-reacting. Theoretical studies are very useful. Early theoretical studies on technical analysis confirmed what everybody knows, i.e. the fact that 95% of traders lose money.

You laugh at academicians but I tell you, they laugh back at you because they believe that your "edge" is pure luck not due to technical analysis skills and you will run out of it soon.

Needless to mention the advancements in sports equipment and athlete performance due to theoretical studies.

But I agree with you that trading is empirical knowledge. But that is not the point. You can avoid costly mistakes by doing theoretical studies.

Ron
More...

I truly hope you are not saying that the reason why traders lose money is because they use TA.

If so, that's myth.

Here's a list of the most common reasons why most traders lose money:

* Lack of Discipline

* Poor Money Management Skills

* Improper Trade Management after Entry

* Under Capitalization

* Improper Trading Equipement

* Poor Stress Management

Any combo of the above easily outweighs the TA connection.

In addition, throw in the scenario that most traders do not understand the TA they are using.

Getting back on topic about Japanese Candlestick patterns...

I've shown here at ET many times misinterpretations by other ET members of candlestick patterns even among the most so called advance knowledgable users of Japanese Candlestick Analysis and those that have a strong background in testing Japanese Candlesticks.

It's just down right scary to see so many consistent misinterpretations and error prone application.

Therefore, if the theoretical studies are approach with errors...

The results will be problematic which is why I myself prefer to dig deeper into those result numbers including my own testing results (manual testing only these days for me) to ensure its not a situation of crap in...crap out.

Once again, I want to remind everybody that profitable traders that are consistent from year to year to year...

If they are using TA or anything to do with a chart...

It's not their most important asset while trading.

Technical Analysis or even Japanese Candlesticks is just one chapter out of many chapters in a profitable trader's trading book.

Therefore, to properly judge the merits of Japanese Candlesticks or any other form of technical analysis...

You need to look at how real traders that are profitable...how they are actually using it within their trading plan.

You'll quickly determine that profitable traders aren't lucky because they have a strong foundation in those things I mentioned above (e.g. disciplined, properly capitalized et cetera)...

This is one of the limitations with theoretical studies.

Mark
 
Quote from tomorton:

Academic studies on trading are worse than useless. Dismiss whatever they say, regardless of whether positive or negative. Gather knowledge from traders on the tools of the job, then learn to trade by trading.

Would you even bother to read an academic study on how to play football well?
More...

Totally agree.
 
Quote from ronblack:

"weak"
More...
This is the whole problem...
With virtually all TA based "systems"...
And even newer Algo or AI approaches to trading:

They are very sub-optimal...
With slim profit margins and high variance.

You cannot build a long-term business using these methods...
Because even if they "work"...
Your competition is running more optimal strategies and will crush you.

In the specialized niches I trade...
I would CRUSH anybody using TA over any significant length of time...
Just like a Poker Pro would CRUSH someone using such simplistic methods.

The problem with the whole TA crowd...
Is that they cannot understand...
That to make money trading...
You MUST take money away from the Top 10,000 traders in the world.
 
Quote from NihabaAshi:

Here's a list of the most common reasons why most traders lose money:

More...

You missed the most important reason and the number one reason why most traders lose money:

* Most traders use trivial technical analyis

You are wrong because you seem not to understand that your list is made of necessary but not sufficient reasons.

Most people don't understand the difference between necessity and sufficiency.

It don't matter how discipline one is if he is using a losing system. Don't matter how good the risk management is he's gonna lose for sure.

Don't matter if your reasons are not there if the system is a loser. You gotta know the difference between necessity and sufficiency.

Bill
 
Quote from DeeDeeTwo:

The problem with the whole TA crowd...
Is that they cannot understand...
That to make money trading...
You MUST take money away from the Top 10,000 traders in the world.
More...

Finally someone who knows what he's talking about. TA won't give you the weapon to fight top traders. They don't use TA. They use MONEY.

MONEY, A LOT OF MONEY is the key to succesful trading.

Bill
 
Quote from intradaybill:

You missed the most important reason and the number one reason why most traders lose money:

* Most traders use trivial technical analyis

You are wrong because you seem not to understand that your list is made of necessary but not sufficient reasons.

Most people don't understand the difference between necessity and sufficiency.

It don't matter how discipline one is if he is using a losing system. Don't matter how good the risk management is he's gonna lose for sure...
More...

Too many surveys or polls support my reasons.

In fact, you can do one on your own at ET and many other discussion forums.

List a dozen or so different reasons why traders think they failed and make sure you include TA among the list. :cool:

Simply, the other side of the coin is this...

A trader can have a winning system (backtest show positive expectancy) and lack discipline, paying too much on commissions, poor money management skills, lack capitalization, don't have the proper trading equipment, unable to handle the stress associated with trading et cetera...

That trader will fail.

Therefore, a winning system will not be a surrogate mother for areas in that common list I mention that a trader lacks.

That's one of those myths floating around in the market...

All I need to do is develop a winning system and everything else will take care of itself. :D

You gotta take care of all that other stuff because if you don't...

They will yank the rug out beneath a winning system.

The sooner a trader puts more emphasis on all those other things...

That's a trader that will be ready to exploit his winning system.

Quote from intradaybill:

...Don't matter if your reasons are not there if the system is a loser. You gotta know the difference between necessity and sufficiency.
More...

I never said nor imply a trader with a losing system can become profitable if everything else was in place.

Quote from intradaybill:

Finally someone who knows what he's talking about. TA won't give you the weapon to fight top traders. They don't use TA. They use MONEY.

MONEY, A LOT OF MONEY is the key to succesful trading.

Bill
More...

How much money does a retail trader need to be able to say the key to my successful trading will be money???

By the way, is that one of those common list reasons I named earlier (e.g. proper capitalization) of why traders are most likely to fail when such isn't in place prior to the appearance of their trade signals. :confused:

Simply, I agree sort'uv but its just one of the key reasons among other variables (see common list I mentioned in prior messages).

However, having lots of money doesn't fix a losing method. :cool:

This gets into my prior messages in other threads about TA testing.

Backtesters needs to understand that there's more to successful trading than Entry Signals.

Ignoring those realities as if TA is the key is flawed.

TA is just one chapter in the book called Profitable Trading.

Mark
 
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