Discussion in 'Technical Analysis' started by fatrat, Jan 18, 2007.
No problem. Just send me a copy of your magazine and we'll call it even.
"They are unimportant single candlestick lines. "
Sometimes a single candle has a lot of importance. Like a large real body or hammer
"The reason why they are unimportant is because the prior price action is either ignored or did not support the single candlestick line that produced your analysis. "
How do you tell if the prior price action is ignored or supported?..do you mean candles that bounce off a trend line or s/r levels?... If not, please post a picture of what you're talking about.
I included 3 charts here that show how a single candle can mean a lot when it comes to forcasting future prices. The candle I'm talking about is the Doji and spinning top. On each of these charts, there was a doji candle before each gap down/ up, that appeared near the top of its trend. On SHLD alone, you have a spinning top and two doji... it's just yelling "reversal" to any trader.
The single candlestick lines on your chart that IronFist had commented about...
Those particular single lines are unimportant due to the price action they had occurred within.
Simply, on another chart with a different type of price action, they may be more important but that does not imply they are trade signals.
Therefore, single candlestick lines are not trade signals even though their importance is determine by the price action they are involved in.
As for my statements concerning the words ignored or not supported...
It's the same story.
Single candlestick lines are not trade signals because they are not a pattern all by themselves.
The price action prior and/or within a few intervals after will determine if a single line traverses into a pattern.
On your prior chart in reference...
The mentioned Hammer lines by IronFist were not part of a valid candlestick pattern signal.
As for your most recent charts...
The chart at the above link in which you highlighted a Doji is actually part of a pattern because its in an engulfing position that's supported by the green interval prior to it.
Further, the engulfing price action occurred immediately after an expansion interval.
involving the green expansion.
In addition, the first two intervals after the doji in engulfing position confirmed that volatility had contracted after the expansion interval.
That change in volatility sets up a pending volatility spike.
That volatility spike (not volume spike) occurred in the first red interval that's three intervals after the doji.
That red interval (volatility spike) is also engulfing the prior interval.
That's a confirmed candlestick pattern in which the doji was involved in.
Simply, the doji all by itself did not make the pattern.
Your next chart...
The first highlighted box is not a candlestick pattern.
Thus, it should have been ignored for trade signal purposes.
Now, as mentioned in the Trading Hammers (revisited) thread...
Long shadows will often hint to a pending (soon to be) pattern signal.
Do you see the dark (red) line as an expansion interval after your highlighted box?
That's a volatility spike, that tells you to keep alert for a pattern signal that may form because you now have part of the puzzle.
Guess what, the first interval after the dark (red) expansion interval is a green interval in Harami position.
There's your trade signal to go Long.
Profit target anywhere in the range of the highlighted box because that's your s/r zone especially since the price action in that highlighted box found resistance itself in the s/r zone of 10/23/06 on your chart.
Now, lets talk about that second highlighted box.
What do you see in the most recent price action?
Another dark (red) line as an expansion interval (volatility spike).
Guess what again?
The intervals after that expansion interval develop small ranges to confirm volatility contraction.
Suddenly, that spinning top gets engulfed by a green candlestick line.
That's another buy signal.
Just as important, it occurred within the s/r zone of a prior gree expansion interval that had volatility spike back on 10/09/06.
In fact, look at the swing points lows of all the price action that occurred within the s/r zone of that 10/09/06 green candlestick expansion interval.
Finally, your third chart...
The circled highlighted doji is not part of any Japanese Candlestick formation.
In fact, I suspect the way the first dark line that gapped down after the doji...
The price drop that occurred soon afterwards was news related.
A gap down that produce a big s/r zone.
My point, with all the above.
Don't fool yourself into thinking one single candlestick line can be a trade decision all by itself.
If you do such consistently without doing any other analysis/confirmation of the price action before or after...
I guaranteed that type of Japanese Candlestick Analysis will empty your trading account.
Simply, there was much more occurring on your price charts than those single candlestick lines and you know it.
I mean, I read your journal here at ET and you sure do mention other things about the price action that you trade that helped formed your analysis and trade decisions.
You have indicators (ROC, Money Flow Index) on your charts, you talk about key economic reports, earnings reports, news alerts, s/r levels, trendlines et cetera.
However, you rarely if ever discuss candlestick lines or candlestick patterns in your journal while you discuss other stuff involving the price action.
Therefore, I'm going to assume you literally didn't mean nor hinted that you are profitable at making trade decisions solely based upon single candlestick lines and nothing else.
Yes, something else was YELLING reversal to you and it sure wasn't a doji nor a spinning top.
P.S. My support/resistance zones are based upon expansion intervals w/ volatility spikes (I call these WRB's), long shadows and valid prior candlestick patterns.
(a.k.a. NihabaAshi Japanese Candlestick term
"I guaranteed that type of Japanese Candlestick Analysis will empty your trading account. "
You may or may not remember some of my early threads here on ET where I asked a lot of questions about candles. Now I never trade off a single candle alone....if I did, I probably wouldn't be here to tell about it :eek: . BUT, there are exceptions I'll mention later.
"I mean, I read your journal here at ET and you sure do mention other things about the price action that you trade that helped formed your analysis and trade decisions.
You have indicators (ROC, Money Flow Index) on your charts, you talk about key economic reports, earnings reports, news alerts, s/r levels, trendlines et cetera. "
I got burned a few times when I bought before a earnings report, or the day of. Mergers, lawsuits, the price of oil, interest rates...it never ends. anything I believe that could affect a stock before a trade, or once in a trade is now important to me. People here on ET say "dont trade the news"...well I disagree with that. I want to know what everyone else knows, and that can only help me.
"Therefore, I'm going to assume you literally didn't mean nor hinted that you are profitable at making trade decisions solely based upon single candlestick lines and nothing else. "
You read my journal, then you know I have problems with stops. Sometimes a single candle can be the cause of my problems.
1. The market (dow) is up buy a lot (50+) and my stock hardly moves..I get scared.
2. If my stock has moved sideways in the past one to three days, and the current session closes as a small real body I get scared
3. Low volume on a small real body, I get scared
there are a few exceptions to my fears, but if I dont use a stop or cancel a stop, its because something on that chart made me worried.
Now I want to go back and talk about when a single candle justifies a trade. On this daily chart for VLO, you'll notice the two ascending triangles I drew... the candle that broke the resistance line of the triangle is a buy point, however the prior candles before it, dont seem to mean much.
First of all, once you start talking about triangles, resistance trend lines...
That tells me your analysis and/or trade decision is based upon something more than a single candlestick line.
My point, if you were trading exclusively via single candlestick lines...you would not have mentioned triangles nor trend lines.
Now, to answer your question directly (it seems like a question).
There's a lot of price action info in those prior intervals before each of the marked green intervals on your chart.
Both of your green lines Opened within the s/r zone of a recent expansion line (WRB) and then Closed above the s/r zone.
The first highlighted green line is a expansion interval with volatility spike based upon the price action info prior to the expansion interval.
It produced a decent profit as long as you didn't get greedy around the highs on the date after the words of 12/05/06 on your chart.
The second highlighted green line on your chart is not a expansion line nor is it a volatility spike because the real expansion interval as a volatility spiked occurred four intervals earlier.
Remember what I said in my prior post about using prior pattern signals as s/r zones (I also mention this several times in the Trading Hammers - revisited thread)?
Compare the lows of the price area in your second triangle pattern to the Bullish Harami pattern that occurred back on a date after the numbers 10/02/06 on your chart.
Last of all, one more valuable piece of info in that price action that at first glance to you seems not to mean too much...
When the price ranges narrows for several intervals after a WRB (expansion interval) with volatility spike...
That narrow price range of price contraction (declining volatility) becomes s/r zone all in itself.
Thus, those highlighted green lines on your chart were breakout intervals above a resistance level.
Nathan, all the info above show one thing.
Once you start understanding the price action that's involved in your trade singles...
You'll stop referring to those intervals as single candlestick lines and refer to them as confirmation to what you know about the price action because the confirmation is part of a pattern.
Your chart attachment is called candle_confirm.jpg.
Therefore, change the prior price action and you may no longer have a confirmation signal even though the single candlestick line is the exact same.
A prior price action that has a big impact on your trade management after entry.
(a.k.a. NihabaAshi) Japanese Candlestick term
Thanks for the link.
Suspect have seen some of the videos before although maybe not all.
I find that when there are big players in it, volume is more readable. When there aren't any big players in it, volume is dangerous to be read and I try to stay out.
I'm somewhat familiar with candlestick patterns(although have forgotten a lot of their names already) but a bit confused with your statements on volatility bars. If you would be so kind to clear my confusion as below. Thanks.
1) You mentioned with regards to CM69's 2nd chart:
".....Do you see the dark (red) line as an expansion interval after your highlighted box?
That's a volatility spike, that tells you to keep alert for a pattern signal that may form because you now have part of the puzzle..."
When you say the dark red line, you are basically saying the wide range bearish bar with a slight bottom tail right?
2) Understand that you have mentioned about volatility bars here and elsewhere, basically are you saying that large volatility bars are those bars that have large spreads (ie difference between high and close) regardless of where the open and close are?
3) Are you also stating that if there is a wide ranging bar (not exactly the correct term, just trying to say that a bar with a large high-low difference) , then if its followed by smaller bars (ie contraction in volatility), this might give us a clue that the direction may reverse?
Is it correct that in 1 of the example explained previously by you, if there happens to be a large bearish bar followed the next day by a smaller bullish bar near support area, we are looking to buy?
[For me, I tend to be more focused on the support/resistance zone (together with maybe smaller bars after the wide bearish bar --not that particular whether the small bars are bearish/bullish).
I'm not so concerned with whether the next day/days have a small bullish candle after a wide ranging bearish candle so that I can enter the day after the bullish bar. Am I wrong not to consider that?
(For me whether I choose to enter a long/short here will depend on the next day's intraday action after the narrow range bar(s). If I choose not to consider the intraday's action, I will most probably buy above the high of the narrow range bar(s) regardless of whether the narrow range bar is bullish or bearish. Will be interested to hear your views]
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