What's Your Favorite Candlestick Pattern?

[NihabaAshi]

Quote from traderkay:

You said that my suggested way of backtesting is wrong. It's not wrong, and I'm not the one who came up with it. It's a widely accepted method to backtest any setup for an edge. First you define the entry with strict rules. (If you don't like using Overbought Stoch as indication of prolonged uptrend, you can use MACD or whatever else you feel is a good indicator of a trend). Then you simply backtest then entry with exits at fixed time intervals such as +1, +5, +10, +15, etc. bars. You look at win% at those intervals. If they're inferior, there's no edge and there's no sense in pursuing the setup further.

Now I'm wondering how you backtested intraday candlesticks?

You obviously made your mind up...

your method showed that candlesticks are inferior, there's no edge and there's no sense in pursuing the setup further.

Nison, Matheny, Morris and the gang obviously doesn't know what their talking about.

By the way...is it possible that your so call strict rules for entry are flawed?

At least...is it possible that your strict rules for entry are different from my own strict rules?

(I won't reveal my strict rules...you can review my posted charts and piece the puzzle together yourself...no hand holding from me.)

In fact...after you review those charts I posted...

http://www.ttrader.com/mycharts/display_album.php?id=433

you tell me if your strict rules for entry would have seen those particular Bearish Engulfing patterns or ignored them?

In other words...would your method of backtesting caught those trade signals?

That may explain why two traders looking at a cloud in the sky...get two different perceptions of what the cloud looks like.

P.S. As I've said often in the past...its not the chart pattern nor indicator that determines if a trade will be successful or not...

it's the trader.

NihabaAshi

 

[NihabaAshi]

Quote from traderkay:

it's very simple to backtest candlestick patterns. You look at the description of bearish engulfing. Then you describe the relationships between two candles' H, L, O and C. Like H1 less than O2 or whatever. Then if you wanna get picky, you can define the trend too. For an uptrend you can require some long-term stochastics to be over 80 or something like that. The exit is even simpler. Exit on close (or open) at +3, +5, +10, +15, etc. bars. If the % of winning trades isnt much higher than 50% then I'm sorry Mr. Nison,

there's no edge.

As I promised yesterday...

I would post the Bearish Engulfing intraday Japanese Candlestick pattern if/when such appears today for March 21st Friday...

it's posted below.

In that chart below...so far at the time of this post...only 2 possible Bearish Engulfing candlestick pattern has appeared.

Both appeared on the 1min all session chart but only one was a valid signal.

Hopefully I've shown that just because one trader is unable to exploit a particular indicator, chart pattern or system...

doesn't imply that all traders will have the same problem.

Remember...I didn't pick the Bearish Engulfing...traderkay did for his example of a pattern that doesn't work.

http://www.ttrader.com/mycharts/display_album.php?id=433

NihabaAshi

 

[traderkay]

Sure it's quite possible that my strict rules are different from yours. But the difference can be only this great. I mean if the recipe book says 2 oranges and 1 apple, you could go a bit extra on the oranges and do 2.5 oranges; but going with 5 oranges and 1 apple wouldn't be exactly following the recipe. The rules are derived from the textbook description of the pattern plus the subjective coding of the "presence of trend" concept. Presence of trend concept is where the difference is probably coming in. Anyhow, you haven't answered my question.. how do you backtest candlesticks? You don't need to tell me "the custom criterias", just the process. My guess that the secret "custom criteria" is something discretionary though.

 

[NihabaAshi]

Quote from traderkay:

...Anyhow, you haven't answered my question.. how do you backtest candlesticks? You don't need to tell me "the custom criterias", just the process. My guess that the secret "custom criteria" is something discretionary though.

I did answer your question...

here's my answer again...

My method of backtesting (strict-rules) is obviously different from what you posted on how to backtest intraday candlesticks and I have no intentions of sharing with you how I backtest.

Simply...you seem to put much more emphasis on backtesting than I do...I put more emphasis on results via realtime trading.

In fact...your the first trader I've met that tests candlesticks that way...or at least tested the Bearish Engulfing that way you've described...

what's up with your exit methods based on how you backtested...do you actually trade that way in reality?

Quote from traderkay:

...Exit on close (or open) at +3, +5, +10, +15, etc. bars. If the % of winning trades isnt much higher than 50% then I'm sorry Mr. Nison, there's no edge.

Further...I won't do any hand holding for you...you study the charts I posted and figure out some of the rule-based criterias...

that in my opinion is much more important to concentrate on...especially when trying to apply such in realtime.

Also, I don't know what you mean by the word process.

Hint: I use Tradestation and SuperCharts for my backtesting of the past if that is what you meant by the word process.

if not...give me an example of what you mean and I will see if I can answer that aspect for you.

By the way...what text book example of a Bearish Engulfing intraday candlestick pattern are you using?

Please answer the above question if possible...in fact...what specific page are you referencing?

I'm beginning to think your basing your interpretation of the reliability of Bearish Engulfing on one particular type of a Bearish Engulfing or on some type of default setting that came with your backtesting software.

Traderkay...do you know that there are different types of Bearish Engulfing?

http://www.ttrader.com/mycharts/display_album.php?id=433

(my charts show a few different types)

...different types of Bearish Haramis...different types of Bullish Haramis and so on and so on is common knowledge among candlestick users.

Review those charts I've posted and tell me if you see something different via my Bearish Engulfing in comparison to your so called text book examples that you've backtested.

Lets do this...post some charts (as I did) of your Bearish Engulfing that fits your strict-rules.

Once you figure out some of the rules (not anybody else...but you)...I'll let you know if your wrong or correct.

Traderkay...my purpose is to get you to look at intraday candlesticks in a way that your not use to doing.

It's called...stepping outside the box...

a phrase I picked up from an ex-floor trader in my family.

If you meant the custom pattern...that is my own unique intraday candlestick pattern out of many...Bearish Rising Shadows that was on the same chart as the Bearish Engulfing.

Once again...show me some charts (just one) of your example of a Bearish Engulfing candlestick pattern that would have resulted in losses for you based on your strict rules for entry...

as I promised before...only then will I show you a few tips or seeds to help you prevent future false trade signals via the Bearish Engulfing intraday candlestick pattern.

Simply...I'm offering to help...I won't hand hold you nor discuss backtesting methods...

all you have to do is show me where you were having problems with the Bearish Engulfing pattern...

(hopefully you won't tell me you never traded it...you only backtested it)

for this conversation to continue and to be productive.

Post some charts, post some charts...post some charts

Also...I've been posting charts in hindsight thats in conflict with your words that say that candlesticks have no edge...

The beef of the story is can such be reliable in applying in realtime?

My answer is yes...once again...I'm willing to show you in realtime.

The more you don't provide what I ask...the more I think your not interested in learning how to fix a trade problem of the past.

Here are those questions I need for you to answer:

1. What text book example of a Bearish Engulfing intraday candlestick pattern are you using?

2. What specific page are you referencing?

3. Do you know that there are different types of Bearish Engulfing?

(my charts show a few different types)

4. Will you show me show charts examples of problems your having with the Bearish Engulfing intraday pattern?

5. What's more important to you...your backtesting results or realtime results?

NihabaAshi

 

[BobbyMurcerFan]

Quote from traderkay:

Sure it's quite possible that my strict rules are different from yours. But the difference can be only this great. I mean if the recipe book says 2 oranges and 1 apple, you could go a bit extra on the oranges and do 2.5 oranges; but going with 5 oranges and 1 apple wouldn't be exactly following the recipe. The rules are derived from the textbook description of the pattern plus the subjective coding of the "presence of trend" concept. Presence of trend concept is where the difference is probably coming in. Anyhow, you haven't answered my question.. how do you backtest candlesticks? You don't need to tell me "the custom criterias", just the process. My guess that the secret "custom criteria" is something discretionary though.

From my experience, yes a small tweek can make a big difference, so your recipe anaolgy is really not a great choice. I've heard another analogy about trading, which is it's like picking a lock: you have to get all the tumblers lined up and apply just the right amount of pressure versus sensory feedback to open the door. Until then, it stays shut. Sounds good huh? )

In terms of "discretion," dpending on someone's coding skills, what might be discretionary for one person might be codeable, and therefore not discretionary, for another.

But thanks for ANSWERING how you've tested candlesticks.

 

[axeman]

Just some thoughts on backtesting and candles.

If you backtest candle sticks blind... aka....
count every single bearish engulfing candle you
come across, then you will find no edge.

The reason is, some bearish engulfing candles are
actually good LONG signals. They are the first pullback
to the beginning of a new trend.

On the short time frames ( 1 min, etc), SOME bearish
engulfing candles are great for a quick scalp
in an uptrend when price is greatly overextended...
...for example when really far away from your favoriate EMA.

Then there are bearish engulfing that can occur at the
very end of a trend, and signal the possible end of a trend,
and possible reversal.

The point is... bearish engulfing candles only make
sense in the proper context. The problem is, this
"context" is very diffuclt to backtest because it usually
depends on charting patterns which are incredibly
difficult to code, even for expert programmers.
Aka... triangles, flags, broadening top patterns, etc, etc

I think its theoretically possible to write code that tests
the valuable engulfing candles, but the effort is simply
not worth it or far beyond the majority of traders
programming capabilities.
Better to visually inspect a few hundred
charts manually, and crunch the numbers by hand.
This wont take nearly as long as coding this difficult
pattern recognition problem.

This is where most backtesters make a mistake.
They write some trivial code, using the textbook definition
of a bearish engulfing candle, run the program,
get ZIPPO, and then call bullshit and give up.

Your gonna have to try much harder than that to find
an edge.

peace

axeman

Quote from traderkay:

Sure it's quite possible that my strict rules are different from yours. But the difference can be only this great. I mean if the recipe book says 2 oranges and 1 apple, you could go a bit extra on the oranges and do 2.5 oranges; but going with 5 oranges and 1 apple wouldn't be exactly following the recipe. The rules are derived from the textbook description of the pattern plus the subjective coding of the "presence of trend" concept. Presence of trend concept is where the difference is probably coming in. Anyhow, you haven't answered my question.. how do you backtest candlesticks? You don't need to tell me "the custom criterias", just the process. My guess that the secret "custom criteria" is something discretionary though.

 

[Walther]

To NihabaAshi,
Thanks for your charts and for your determination.
I will look at candle patterns differently from now on. I have one question: Does bullish engulfing pattern has a same validity as bearish engulfing pattern?
I know this might sound trivial but I just started in candles.
Thanks,
Walter

 

[NihabaAshi]

Quote from Walther:

To NihabaAshi,
Thanks for your charts and for your determination.
I will look at candle patterns differently from now on. I have one question: Does bullish engulfing pattern has a same validity as bearish engulfing pattern?
I know this might sound trivial but I just started in candles.
Thanks,
Walter

Thanks Walther,

Intraday Bullish Engulfing patterns aren't as reliable as intraday Bearish Engulfing for obvious reasons...its a bear market.

Also, intraday Bullish Engulfing patterns don't appear as often as Bearish Engulfing patterns for the obvious reasons...its a bear market.

However...when I take a trade signal via an intraday Bullish Engulfing setup...

it's usually within the first 15mins after the open via a particular trade setup.

Later...if Bullish Engulfing appears in price pullbacks during an obvious uptrend...I usually stay away from those unless one particular trade situation sets up.

Bullish Engulfing via higher price low chart patterns are another trade situation to research.

All the above... can easily be reviewed and figured out by studying the charts for a minimum of 6 past months...

no hand holding here...planting more seeds.

I remember during the Bull Market...anytime I saw a V-Thrust Bottom in the first hour of trading via a Bullish Engulfing...

that was an easy bottom pick for big profits in the Eminis.

It's no longer that way and now will often result in losses.

Thus, its one particular pattern situation I avoid...have been since early summar of 2000.

Yet...I still see intraday candlestick traders trying to catch a falling knife (bottom pick a parabolic downtrend) via a Bullish Engulfing pattern based on some text book example...to only get a rude awakening.

Rule of thumb...more often than not...intraday Bearish candlestick patterns have more follow-through during Bear Markets and intraday Bullish candlesticks patterns have more follow-through during Bull Market...

something to exploit if you trade size and want to know when to go light or heavy on the contracts accordingly to the overall longer trend.

I call this position size management.

Simply...if you can't resist those Bullish Engulfing patterns that appear in downtrends...go light on the size.

Axeman brough up a valuable point in his post...

Quote from axeman:

...Better to visually inspect a few hundred charts manually, and crunch the numbers by hand.

This wont take nearly as long as coding this difficult pattern recognition problem.

This is where most backtesters make a mistake. They write some trivial code, using the textbook definition...

Your gonna have to try much harder than that to find an edge.

peace

axeman

This I completely agree with.

Many here already know via my earlier posts in other threads...

I print out every trading day...1min, 3min, 15min (non-all session and all session) and daily candlestick charts.

Thus, I can easily research any candlestick pattern at leisure while away from the computer, on a business trip, during a long car drive or at a library any particular year for many past years of the Eminis.

I still occasionally use TradeStation to do some simple backtesting...but manually reviewing printed charts produce much better results.

I truly do not know why its easier to review chart patterns of any type via studying printed charts side by side in comparison to scrolling back on a computer and trying to memorize a particular situation you just scrolled past earlier.

More importantly...spouse likes it when I'm in bed with her while reviewing charts when she's reading her favorite book instead of me being stuck at the computer in the other room.

NihabaAshi

 

[traderkay]

"My method of backtesting (strict-rules) is obviously different from what you posted on how to backtest intraday candlesticks and I have no intentions of sharing with you how I backtest."

That's wonderful. Especially, in light of backtesting candlesticks being the original topic of the thread and I'm sure BobbyMurcerFan (thread starter) will appreciate your willingness to share.

 

[NihabaAshi]

Quote from traderkay:

...That's wonderful. Especially, in light of backtesting candlesticks being the original topic of the thread and I'm sure BobbyMurcerFan (thread starter) will appreciate your willingness to share.

Here's the original statement that started this thread...

Quote from BobbyMurcerFan:

I just got a copy of Nison's first Candlestick book. Very good. So far, hammer and hanging man signals seem to be pretty valuable. Do you have any favorite candlestick patterns? Thanks.

Just in case you think this thread got off topic...I'll answer Bobby's original question...

My favorite dialy chart candlestick patterns are Hanging Man, Evening Doji Star, Dark Cloud Cover, Incomplete Dark Cloud Cover and Bullish Engulfing.

My favorite intraday chart candlestick patterns are Shooting Star, Bearish Shooting Star Peaks (custom), Bearish Engulfing, Bearish Rising Shadows (custom), Advanced Tweezer Tops and Bottoms, Long Legged Dojis, Advance Block, Advance Deliberation (custom), Bullish Window and Bearish Windows.

The above are mainly my favorites because after many many years of studying candlesticks...I'm currently very quick at recognizing their signals in realtime (a few seconds after the fact) via discretionary methods without any alert system from a software.

Simply...I'm only concentrating on stuff that I can easily recognize before the trade signal becomes old news or before the price gets outside of my chase range.

(Note: During a Bull Market...my favorities above are slightly different)

BobbyMurcerFan other questions were specifically directed to either you (traderkay) or dbphoenix...

Traderkay...once again...here are those questions I need for you to answer:

(Note: I added in one additional question from the original group and if you choose to not answer the below questions for me...I have no need to continue posting in this thread.)

1. What text book example of a Bearish Engulfing intraday candlestick pattern are you using?

2. What specific page are you referencing?

3. Do you know that there are different types of Bearish Engulfing?

http://www.ttrader.com/mycharts/display_album.php?id=433

(my charts show a few different types)

4. Will you show some charts examples of problems your having with the Bearish Engulfing intraday pattern?

5. Via the Bearish Engulfing in my posted charts above...would your strict rules have signal those bearish engulfing candlestick patterns as valid trade signals?

6. What's more important to you...your backtesting results or realtime results?

NihabaAshi