Learn More about Candlestick Trading

[WmWaster]

Quote from NihabaAshi:
I consider almost all the candlestick books including Nison to either be basic or just generic information.

Pretty true.
They just state the basic.

However, I'm assuming when WmWaster used the words focusing on practical uses...

It can only be of practical use if the information specifically deals with his trading instruments and his trading style.

Everything else outside such may not be of value to him.

I'm sure there must be a blog or like out there somewhere that has practical information that would be much more useful than books especially since he stated he's looking for something advance.

Example, here's a blog that's not about Japanese Candlesticks but has a few good basic discussions/analysis about candlesticks...

http://tradermike.net/2006/03/candlestick_qa

Yet, nothing practical nor useful for me personally.

For something to be practical and useful for me I would like to see commentary/analysis that involves the following:

* Japanese Candlesticks
* Economic Reports Analysis
* Key World Events that had impact on the markets that particular trading day
* In depth discussion about the price action itself that lead to the formation of the candlestick pattern
* European and Asia Market Analysis

Why do you need all sorts of analyses & reports?
Are you a trader who mix technical analysis with fundamental analysis?

I just need something which shows me how to predict the price based on technial analysis ONLY. It could be candlesticks, volumes, indicators, patterns and so on. As long as it's technical analysis, it's fine.

 

[WmWaster]

Quote from JMowery1987:

IMO candlesticks will not make you a good trader.

I know because candlesticks where all that I studied and thought they would make me a good trader.

I ended up using bar-charts anyways and realized all that BS about Candlesticks can easily be interpreted in other ways.

Sorry for my ignorance.
What's BS?

Actaully candlestick and bar are just the same thing. If you're clever enough, you will realise both contains the same 4 major elements - Open, Low, High, Close. Anything done by candlesticks could be done by bars. Thus candlestick is no better than a bar, except that it is more visually appealing. That's the reason why I like candlestick.

But the focus of interpretation differs. Japanese has developed a theory to interpret different shapes of candlesticks & its groups, and give them different names. I have yet to see a book which is focused on bar analysis.

Chart patterns is probably more worth studying, like triangles and stuff. Support and resistance is also great to study.

Just figured I'd throw in my 2 cents

Yes, it's what I'm doing as well.

 

[WmWaster]

Quote from JMowery1987:
"By the way, whom told you that Japanese Candlesticks will make you a great trader???"

The books which i read on candlesticks.

Same as me.

Although I read candlestick charts, I wonder I'm not really a candlestick trader. Rather I spot patterns from candlestick charts. For example, I don't really care what each candlestick means (bullish/bearish/neutral). I feel a single candlestick (price action) without any context is nothing more than meaningless. One day rise, even a big white candlestick, doesn't really mean it is bullish.

It doesn't really matter to me regardless, I could use a close chart for all I care. Candlesticks are not for me, that's fact.

Could use close chart to trade?!
You don't need open/high/low?!
How do you trade based on close only?

I would like to know more about it.

I trade price action, that is all I care about, and I scalp on the 1 minute timeframe. I don't even know why I'm discussing this, just threw in my 2 cents, Candles won't make you a great trader, end of story.

It's because you are here to help other traders.
Enough-said, right?

I try, trading is the greatest job in the world, or at least my world. Only can become successful with experience, hard work, and dedication. I'd like to dedicate that one to Red Ink, Tachyon, and ElectricSavant that inspired me to keep going

As a sidetalk, what did they inspire you?
It would be great if you could introduce me to some of their great threads.


OK! So after long discussions, so it seems candlestick is not as useful as I might imagine (ie candlestick patterns cannot help me predict future price actions - reversal? continuation? bullish? bearish?). You know there are some books which claims we can use candlesticks to make huge profits. Not really, right? So something like doji star, morning star, dark cloud cover don't realy help to determine price reversal or continuation etc.?

 

[WmWaster]

Quote from hcour:

Here's a way 2 seemingly different "labels" of price action via Wyckoff and Candles are actually the same thing. First of all, in the Morris book, candle "patterns" (which are really principles of supply and demand) are divided into 2 groups, Reversal and Continuation. This is precisely Wyckoff, though he speaks of it in terms of accumulation/distribution (reversal) or re-accumulation/re-distribution (continuation). (In fact, this is also Edwards and Magee.)

Now take for instance the Morning/Evening Star Candle Reversal pattern. Morris on the Morning Star: "...a long black body followed by a small body which gaps lower. The 3rd day is a white body that moves into the first day's black body." He elaborates somewhat further that "a downtrend has been in place..." but doesn't go much deeper than that. I think this is one of the problems w/his book, it's too shallow, he doesn't go far enough in his analysis of price action. Wyckoff does. A reversal is usually preceded by some kind of climatic behavior, an overbought/oversold condition in an established trend. This may be indicated by a sudden acceleration of the trend, increased volume and volatility and momentum, a break of a channel supply or demand trendline, wide spreads closing at the extremes relative to previous bars and occurring at significant areas of support and resistance, and/or so on...

So on the first bar of the Morning Star pattern (bullish reversal), Wyckoff would be looking at possible cumulative climatic price action developing, then when the next bar is so relatively narrow this would suggest possible exhaustion of supply, or as Morris says, "indecision". Then the wide spread up (preferably closing near the high) on the 3rd day indicates, at the very least, an automatic rally, when the sellers have been exhausted, at least for the moment. Again, Morris is too confined, he doesn't elaborate as does Wyckoff, who describes the entire subsequent process of retracement, follow-thru, possible trading-range, and so on. Wyckoff also describes that there are infinite variations of this "pattern".

Edwards and Magee, in their analysis of their famous "Island Reversal Pattern", write: "A compact trading-range, usually formed by a fast rally or reaction, which is separated from the previous move by an Exhaustion Gap, and from the move in the opposite direction which follows by a Breakaway Gap." So, that's Wyckoff, Morris, and E&M, all describing the same underlying price behavior in different terms.

H

It seems to be what I exactly want.

It's because a single candlestick or its pattern may mean differently in different contexts, but no book explains this in details.

So what books/(online) resources about Wyckoff, Morris, Edwards, Magee should I read?

Thanks.

 

[WmWaster]

Quote from Algorithm:

To the O.P.,

My experience with candles has been very positive and fulfilling. I think if you are just starting out and want a nice overview, the source that I have found that paid for itself within the first trade I made, Steve Nison's "Beyond Candlesticks", is as good a place to start as any. It may be simple and basic, but hey that's usually the best place to build a foundation from. I was able to pick up a copy of the book off Ebay, but still paid $55 bucks for it. I think I later checked Overstock.com and they had new copies for around $80. I have no affiliation with the book other than I used it to start trading candles with.

Like I said, this is a good place to start and research. I use very simple indicators, both technical and fundamental, in conjunction with candles in my trading/investing and have found it to be more successful than just the indicators alone. As always, results will vary with user.

Nice to hear that.
But I would like to hear more comments about Steve Nison's "Beyond Candlesticks".

Is this just a book to list all sorts of individual candlesticks (eg doji, hammer) and candlestick patterns? Does the author tries to explain how to interpret them with real contexts, or how to apply them into use?

Individual candlesticks and candlestick patterns are nothing more than meaningless if you take them out of the context.

If anyone tells you that they have the "Holy Grail" of investing, just walk away. Candles aren't the Grail, but I have found that they fit in well with my simple trading style and have also served me the best over time as far as charting. Even if you don't use candles on a regular basis, I think educating yourself as to their underlying principles is worthwhile.

Good Luck and Have Fun!

I would say a search for "Holy Grail" is a serious mistake. Higher accruacy doesn't translate to more successful.
We don't need "Holy Grail". What you need is the best match of "risk/reward ratio + accruacy".

A trader who is 90% correct is no better than a trader who is 50% correct only. Why? It's because the forme trader is so conservative and it tries to trade only the most reliable signals. However it overfilters and miss many big opportunities.

Another trader makes quite many mistakes in trading. But it tries to keep the "costs" of the mistakes small. Due to his willingness of braving losses, he has more chances to grasp more good opportunities and win big. He can gain much more than the prudent trader.

 

[NihabaAshi]

Quote from WmWaster:

Pretty true.
They just state the basic.

Why do you need all sorts of analyses & reports?
Are you a trader who mix technical analysis with fundamental analysis?

I just need something which shows me how to predict the price based on technial analysis ONLY. It could be candlesticks, volumes, indicators, patterns and so on. As long as it's technical analysis, it's fine.

Hi WmWaster,

For clarification, when I say Economic Report Analysis...

I'm not implying to try to predict which way the market will go based upon the information released in the reports.

In fact, I don't even care about the specific numbers being released.

Thus, no fundamental analysis in a way some try to anticipate how the market will react to specific details about a report or key market event.

However, I do care about how the price action is reacting to the information and when such a reaction tends to occur.

Example, we all know that a well watched report is the 1030am est EIA Petroleum Status Report.

http://online.wsj.com/public/resources/documents/b-econoday.htm

However, the volatility in the Eminis tends (tendencies) to begin around 1015am est until about 1130am est before other market dynamics becomes important again.

Now you know the reason behind the price action during that specific duration of the trading day on a particular trading day of the week.

With that information, you can study and analyze the performance (entry, exits, initial stops, trailing stop, position size et cetera) during that particular key trading period regardless if your methodology is Japanese Candlesticks, Fib Ratio, S/R Levels, CCI, Intuition or whatever)

More importantly, you'll be able to make adjustments in your methodology that's only applicable for that particular duration.

That understanding has one key use...

Trade management.

We shouldn't apply our methods the exact same way each trading day as if each trading day is the same.

Your recommendation sounds great. but do you know any site which provides good commentary/analysis of candlestick patterns? If so, are they free? If not, how much?

If your talking about daily commentary/analysis...

I don't know any such sites, blogs nor newsletters.

However, we could have a difference in view of what is commentary/analysis.

For example...stuff we see at Stockcharts.com is what I call definitions via charts from yester-year.

Stuff we see at sites that have their own custom candlestick scanner (they analyze the generic patterns) such as Hotcandlestick.com is what I call computer analysis alerts (nothing to really tell you how to manage the trade after the pattern signal)

That brings me back to blogs that talk about candlestick patterns because these are traders talking about their specific trades along with market insight involving Japanese Candlesticks.

Blogs I'm currently looking for actually explain or give their interpretation of what was causing the market to do what it was doing and then use Japanese Candlesticks to confirm the price reaction to the key market moving event along with trade management info about the pattern...

Doing such from trading day to the next trading day.

A real education source that's practical.

That type of blog or website I have not yet found.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term

 

[WmWaster]

Quote from NihabaAshi:

Hi WmWaster,

For clarification, when I say Economic Report Analysis...

I'm not implying to try to predict which way the market will go based upon the information released in the reports.

In fact, I don't even care about the specific numbers being released.

Thus, no fundamental analysis in a way some try to anticipate how the market will react to specific details about a report or key market event.

However, I do care about how the price action is reacting to the information and when such a reaction tends to occur.

Example, we all know that a well watched report is the 1030am est EIA Petroleum Status Report.

However, the volatility in the Eminis tends (tendencies) to begin around 1015am est until about 1130am est before other market dynamics becomes important again.

Now you know the reason behind the price action during that specific duration of the trading day on a particular trading day of the week.

With that information, you can study and analyze the performance (entry, exits, initial stops, trailing stop, position size et cetera) during that particular key trading period regardless if your methodology is Japanese Candlesticks, Fib Ratio, S/R Levels, CCI, Intuition or whatever)

More importantly, you'll be able to make adjustments in your methodology that's only applicable for that particular duration.

That understanding has one key use...

Trade management.

We shouldn't apply our methods the exact same way each trading day as if each trading day is the same.

From the sound of it, you don't really use fundamental analysis to determine a price action o make trade decisions.

Rather you are also a tecnical anaylst which combines many technical skills to predict the price action.

From your example, it seems the importance of a report is simply to tell you when a trend or some serious volatility will occur. A report helps you time the market, right?

But you also mentioned you care how the market react to the report, so why do you care if you don't even care what the report says (& how it affects price in fundamental viewpoint)?

 

[Grob109]

This is an interesting thread.

It points out some very very important considerations for trading to make money.

I particularly compliment w..master for his incite on "next steps" and his clear focus on what is currently missing for him.

On the other hand I am reporting bed news for many other posters. So there is a larger "shoot the messenger" component here as well.

Monitoring the market is not where a person learns to make money.

Monitoring is where a person DOES make the money he makes.

So during off hours is when what is needed is acquired to be able to make money and even do better and better.

Here we were able to read that all things, representation-wise, are saying the same thing. With small exception and the exception was inplied and inferred in one recent inquiring post. It introduced that looking at the scene for longer periods of time (and different preiodicities) seem to be revealing.

Mowery really articulated how to screw up and not know you don't know what is going on.

It turns out that very few posters in this thread actually "see" and "monitor" the market. They do not simply because they have no means of working when the market is open to be able to make money. It is not a plan thing.

Markets work. They work consistently.

A person must sit down and figure out how they are going to relate and succeeed in dealing with these workings.

It is not a case of doing anything "outside" of the market as a system.

w..master "sees" he has a need. The real need he has is not what he has ask for. What he wants he will get. That is for sure. But he will also recognize, at some point, that not much is available and not many have it because it is not helpful in the end.

One poster speaks of the basic assessment in the form of an ignorant query. He is nowhere. w..master is at inquiry to forward his money making knowledge, skills and experience.

By figuring out how the market is working and how it gives you money; you can then determine what you need to be able to "see" the market. Monitoring is only useful to the extent that it enables you to "see" what you need to see to make money.

W..master can't see enough of what is important to see. The solution is to have a guide of what to look for and the order in which to look for the what will appear.

Several suggestions were made to go places and observe how others are reporting their activities. In this way, some "insight" will be obtained.

The guide is easy to do once the instructions for making guides are handed out.

For any style of trading, charts are an aid. The representaion on the charts could be of any type chosen from a wide selection.

For high rates of capital appreciation techniques, the candle stick does not pass the test for one reason not as yet mentioned in this thread. There is a requirement to adjust the guide seriously as different fractals are used in the money making guide. different fractals have vastly different stick distributions so there is no fractal to fractal compatibility in c stick money making guides.

This is verified by the expected mowery failure and the commentary on revelations by going to different chart capacities to show passage of time. And, further by the major major observations that c sticks are best reserved for verifiying what happened. This, alone introduces the "non- leading capabiity" of c sticks.

All money making guides, by their nature, provide "leading" indicators for making money. This is just a matter of course because they all are engendered as write ups that are serial in nature.

The last thing a trader does with his "plan" is make it a guide.

Plans take the form of rule systems. They are inadequate because they do not offer "guidance".

Any trader logs, derbriefs and has an "action" sheet for the morrow. The right half of any DAS (Daily Analysis Sheet) is filled with an update of the situation and, further, "what to look" for and what actions are at hand for the morrow. The DAS is filled in using the "guide". The guide is the traders playbook of the plan (rules) he uses.

Csticks on a given fractal are monitored and "what to look for" is written on the DAS that sits in front of the screens.

W..masters current job is to write his guide for his plan. Most trading business plans are 10 or more parts long. the rules appear in one part and the guide is found in another part. In combination they are the basis of the P&L part of the trading business plan.

When you log and debrief you fiond out that you use more than one trading fractal. When you use more than one trading fractal you find out that candlesticks are different on each fractal in many ways. When you find this out you see that it is difficult to run an effective DAS from a GUIDE because it is very tough to write a guide that will work.

There is no trading system that can be based primarily on what a bar or combination of bars means. as Mark says, if you use candlesticks you need much more collareral and you need to emphasize that they best of all just provide confirmations.

 

[NihabaAshi]

Quote from WmWaster:

...From your example, it seems the importance of a report is simply to tell you when a trend or some serious volatility will occur. A report helps you time the market, right?

But you also mentioned you care how the market react to the report, so why do you care if you don't even care what the report says (& how it affects price in fundamental viewpoint)?

Hi WmWaster,

I guess you can say its a timing thing but then again...maybe not.

If I don't get a pattern signal via the one example I posted earlier between 1015am - 1130am est on Wednesdays or the adjusted Thursday due to a holiday in the early part of the week...

I'm usually sideline just watching the price reaction until the next key event period appears.

Simply, its really just a trade management concern if/when a pattern signal does appear.

Therefore, whether the Jobless Claims is up or down is completely unimportant.

What's important to me is the reaction of the price action an its impact on my pattern signal.

Not sure if that answers your question but its the best I can explain.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term

 

[WmWaster]

Quote from NihabaAshi:

Hi WmWaster,

I guess you can say its a timing thing but then again...maybe not.

If I don't get a pattern signal via the one example I posted earlier between 1015am - 1130am est on Wednesdays or the adjusted Thursday due to a holiday in the early part of the week...

I'm usually sideline just watching the price reaction until the next key event period appears.

Simply, its really just a trade management concern if/when a pattern signal does appear.

Therefore, whether the Jobless Claims is up or down is completely unimportant.

What's important to me is the reaction of the price action an its impact on my pattern signal.

Not sure if that answers your question but its the best I can explain.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term

Let's say the price keep moving sideway between 1015am - 1130am est but it breakthrough (or the price action issues some trading signals to you) at 1200 noon, will you just keep watching (because the reaction is in a wrong timin. you might suspect that reaction) or will you open position anyway?