Volume Candlestick Question for NihabaAshi

J

JangoFolly

Mark,

Originally, I posted this under the "Trend Continuation Candles" (http://www.elitetrader.com/vb/showthread.php?threadid=65815) thread, but that turned into a pissing contest shortly thereafter so I want to start fresh. Please ignore the post on the other thread.

I use time candle charts primarily for longer-term trading decisions and to define support and resistance areas that many other traders might also reference as key areas. I use volume candle charts for shorter-term trading decisions and to highlight momentum. Also, I find moving averages, bollinger bands, and below the chart indicators are more reliable from volume-based periods.

What are your thoughts on the significance and interpretation of engulfing pattern or doji reversals on time charts versus volume charts? I can see ups and downs to the volume-based charts. On the one hand if price makes a relatively large move in one period that might be significant. On the other hand, a really strong move (i.e., high volume) on a volume chart will print successive candles each with a smaller range.

I've attached a volume chart example from today. There was a bearish engulfing pattern off the high of the day (white horizontal line at 1.2277) that was a nice harbinger of a 20-point move down from the subsequent candle's high. Trading this pattern would have gotten one in the trade a little sooner than if trading off a 15-min chart.

Thank you. I really appreciate the thoughtful and thorough explanations you provide.


Regards,

William
 

Attachments

Quote from JangoFolly:

...What are your thoughts on the significance and interpretation of engulfing pattern or doji reversals on time charts versus volume charts? I can see ups and downs to the volume-based charts. On the one hand if price makes a relatively large move in one period that might be significant. On the other hand, a really strong move (i.e., high volume) on a volume chart will print successive candles each with a smaller range.

I've attached a volume chart example from today. There was a bearish engulfing pattern off the high of the day (white horizontal line at 1.2277) that was a nice harbinger of a 20-point move down from the subsequent candle's high. Trading this pattern would have gotten one in the trade a little sooner than if trading off a 15-min chart.

Thank you. I really appreciate the thoughtful and thorough explanations you provide.

Regards,

William
More...

Hi William,

I'm not that familiar with candlestick patterns based upon volume charts only in comparison to what I am familiar with as in candlestick patterns based upon time charts.

First of all, there's a lot of misinterpretations about what is an Engulfing pattern.

My interpretation of an Engulfing pattern is when the body of one interval engulfs the body of the prior interval.

Thus, I want to see a Bearish Engulfing that has the Close < Open1 and Open > Close1.

In your chart example you show Close < Open1 but the Open = Close1.

To me that's not a Bearish Engulfing pattern.

William, I'll return later and finish my reply...I have a small little emergency to tend to as in my trouble making 3 year old :cool:

Mark
 
Quote from NihabaAshi:

but the Open = Close1.
More...

Mark,

Isn't that a general issue with intraday data, even when using time charts? With volume periods it will often be the case that a single, multi-contract tick will bridge two candles (last contract on one and first on the next).

Anyway, I'm looking forward to the rest of your response. Thank you.


Regards,

William
 
Quote from JangoFolly:

Mark,

Isn't that a general issue with intraday data, even when using time charts? With volume periods it will often be the case that a single, multi-contract tick will bridge two candles (last contract on one and first on the next).

Anyway, I'm looking forward to the rest of your response. Thank you.

Regards,

William
More...

Hi William,

I'm not sure if your aware but in some of the other threads I've participated in...

Japanese Candlestick analysis isn't my primary methodology...its a secondary methodology that gives support to my primary methodology and I just enjoy talking about candlesticks.

Thus, I may come across as only trading via candlesticks and that's far from the truth.

Just remember, candlestick analysis shouldn't be used (something I preach a lot here at ET) as a method all by itself.

I strongly believe it should be used (if used) as a confirmation tool to whatever is your primary method or your primary method is integrated into your candlestick decisions to confirm what you already know about the current price action.

Also, I don't trade single or two candlestick line patterns.

I'm very dependent upon the price action that occurs prior to the candlestick pattern.

Thus, if I understand the prior price action that leads into the candlestick pattern...I'm usually (not always) ok regardless if you had a Bearish Engulfing and I had a Bearish Harami pattern.

Therefore, any data vendor errors, ISP lost data packets or anything else that can go wrong to change the pattern is not a big issue for me.

Yet, it would be if I only traded via candlestick analysis exclusively or if I traded 1-3 candlestick line patterns.

Last of all, its a lot easier to say to another trader something like I just saw a Bullish White Hammer instead of explaning the entire price action that leads to the candlestick pattern and then explaning the price action of the pattern.

Names of patterns is just an easy and quick way to talk about the price action.

Mark
 
Quote from JangoFolly:

Mark,

Originally, I posted this under the "Trend Continuation Candles" (http://www.elitetrader.com/vb/showthread.php?threadid=65815) thread, but that turned into a pissing contest shortly thereafter so I want to start fresh. Please ignore the post on the other thread.

I use time candle charts primarily for longer-term trading decisions and to define support and resistance areas that many other traders might also reference as key areas. I use volume candle charts for shorter-term trading decisions and to highlight momentum. Also, I find moving averages, bollinger bands, and below the chart indicators are more reliable from volume-based periods.

What are your thoughts on the significance and interpretation of engulfing pattern or doji reversals on time charts versus volume charts? I can see ups and downs to the volume-based charts. On the one hand if price makes a relatively large move in one period that might be significant. On the other hand, a really strong move (i.e., high volume) on a volume chart will print successive candles each with a smaller range.

I've attached a volume chart example from today. There was a bearish engulfing pattern off the high of the day (white horizontal line at 1.2277) that was a nice harbinger of a 20-point move down from the subsequent candle's high. Trading this pattern would have gotten one in the trade a little sooner than if trading off a 15-min chart.

Thank you. I really appreciate the thoughtful and thorough explanations you provide.


Regards,

William
More...

Hi William,

Just to follow-up my prior message to your message.

I agree, trading this pattern would have gotten you in the trade sooner than if trading off a 15min chart.

However, can't you say the same thing had you been using the 3min chart that it would have gotten you in the trade sooner than pattern signals on the 15min chart?

To me the issue isn't what chart interval to use nor what type of chart to use (candlestick, bar, line, tick, volume only, contract only et cetera).

The issue is do you understand what's occurring prior to whatever pattern signal you saw???

If your answer is yes...names, titles or tick differences becomes less important.

By the way, I prefer long legged dojis because they are part of the Long Shadow family.

JangoFolly, a good way to avoid the usual ET characters that show up to argue, negative sarcasm and worst...

You can ask your questions via pm to avoid all the pissing contests as you call it.

It's what I do mainly myself when I have questions to ask someone here at ET.

Mark
 
Quote from NihabaAshi:

I strongly believe it should be used (if used) as a confirmation tool to whatever is your primary method or your primary method is integrated into your candlestick decisions to confirm what you already know about the current price action.
More...

Mark,

Thanks for the follow up. Just like below the chart indicators, candlesticks only play a supporting role in my trading decisions. I focus primarily on price action and buying support/selling resistance on a short timeframe. I find candles help me gauge the sentiment of the market and keep me out of bad trades (i.e., I won't try to sell resistance following an ascending WRB).

I'm currently trying to get better at holding on to my winners and trading on a longer timeframe, and I think candlestick analysis might be an important part of that effort. I've been a little frustrated with published materials on the topic, as they seem to focus almost entirely on recognizing patterns rather than the practical considerations of incorporating those patterns into one's trading. Certainly, none of the materials I've read even mentions alternatives to time-based periods.

Quote from NihabaAshi:

JangoFolly, a good way to avoid the usual ET characters that show up to argue, negative sarcasm and worst...

You can ask your questions via pm to avoid all the pissing contests as you call it.

It's what I do mainly myself when I have questions to ask someone here at ET.
More...

I think it's unfortunate that ET has to be so toxic sometimes. This place should be all about the exchange of ideas and information, as well as having some fun (hazing newbies not falling under the category of fun). But it sucks if a meaningful exchange of ideas has to transpire off the forum to avoid the trolls.

Anyway, thank you for your time and thoughts, Mark. I'll take a look at some of your archive posts.


Regards,

William
 
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