[QUESTION] - Can You Have An Edge With Simple Candlestick Patterns?

[Tall Mike]

I just did a little bit of manual backtesting on the ES intraday 5 min charts testing a simple strategy I put together looking at engulfing patterns.

The strategy looks decent, and from what I can see so far looks to give some good trades on both sides of the market, however, I feel like a simple candlestick pattern like this overlayed with another indicator is way too simple and cannot possibly provide an edge long term. Maybe I am getting in my own head because it's so simple but I feel like there is no way you could use something as simple as this to trade the ES.

Sorry if this is way stupid but I'd really appreciate some input from those of you who day trade.

 

[p0box4]

I just did a little bit of manual backtesting

Do a little bit (actually a lot) more backtesting, then try forward testing and you will have the answer.

It is impossible to answer your question with the information you gave, it is also impossible to estimate general performance on a small time period, you need a lot more data.

 

[SimpleMeLike]

Do a little bit (actually a lot) more backtesting, then try forward testing and you will have the answer.

It is impossible to answer your question with the information you gave, it is also impossible to estimate general performance on a small time period, you need a lot more data.

I agree with you. The OP needs more testing data. I am guessing about 200-300 sample size. Then forward test. Someone else can recommend a smaller or bigger sample size for testing.

 

[tiddlywinks]

In another thread I think you mentioned you are/were a professional poker player.

The term edge I believe is different between poker and trading.

In poker, you can NEVER say the expression "anything can happen"... there are finite cards, the population of outcomes is finite.

In trading anything CAN happen! There is no finite to the outcome of what (can) happen next. Sure, you can argue it will go up or down or sideways. But the magnitude and velocity are not accounted for. And those things matter for P&L! Nothing even close to those characteristics in poker. Does this make sense?

So while a candlestick pattern with an indicator may not be a edge, your ability to recognize the pattern with a modicum of certainty to an outcome of such a setup, that is the edge!

You need more back-testing to get to that usable level of certainty. And be sure to include data from different periods of time.

Hopefully something here makes sense.

 

[oshjdf]

In trending period, an unprofitable trading system experiences its profitable period. Try zoom out to daily chart and backtest on days where price move sideway/ranging.

 

[Tall Mike]

In another thread I think you mentioned you are/were a professional poker player.

The term edge I believe is different between poker and trading.

In poker, you can NEVER say the expression "anything can happen"... there are finite cards, the population of outcomes is finite.

In trading anything CAN happen! There is no finite to the outcome of what (can) happen next. Sure, you can argue it will go up or down or sideways. But the magnitude and velocity are not accounted for. And those things matter for P&L! Nothing even close to those characteristics in poker. Does this make sense?

So while a candlestick pattern with an indicator may not be a edge, your ability to recognize the pattern with a modicum of certainty to an outcome of such a setup, that is the edge!

You need more back-testing to get to that usable level of certainty. And be sure to include data from different periods of time.

Hopefully something here makes sense.

Thanks for the help!

No, I am not a professional poker player, but I understand what you are trying to say.

I am new to trading in that I have never traded, but have educated myself about the markets for years (doesn't mean anything I guess until you start live trading though ).

I think where I am stuck right now in my journey is finding that confidence in pulling the trigger and moving forward with a method or strategy.

I was taught that in trading the markets, you need an edge otherwise you cant make money. And right now, I think I am down this rabbit hole of trying to find where some type of "edge" might lye but analyzing and method hopping in so many different directions.

I completely understand though that just because something worked in the past definitely does not mean it will continue to work in the future so what really is the point of me trying to backtest something?

 

[padutrader]

in trading nothing is what it seems

there are lot of cliches............

there are some who believe that you should know something, that the others do not :is this the edge?

this will not work.

because after you buy, you need a lot of people to buy.....and if they do not know what you know , they will not buy and in fact they may sell.

so secrets and very deep thinking is actually detrimental.

so you need people with you or you may need to think like the majority......

in any case i know what it is not.......from losing...... but i have no clue .....what is !

if not i would be be running a hedge fund and not here writing bull on ET

 

[destriero]

Not specific to candles, but key reversal bars, on any TF, are a viable scalping technique.

 

[padutrader]

let us take this a little further.


you buy and then others buy.......and then still others buy...............

and then even more buy because so many others have bought.

and then everyone buys

now what happens.....

now everyone has to sell........but there is no one to buy.

what happens next?

 

[padutrader]

Not specific to candles, but key reversal bars, on any TF, are a viable scalping technique.

dest how on earth do you scalp with millions