intradaybill....... Thank you for your amazing insightful response.Responses like yours are what makes E.T. so helpful. Thank you again.
I use candle charts but not candlesticks. This is because I like the graphics aspects of them. But I don't use traditional candlestick patterns because a never found any statistical significance in them. It is possible that other people know how to use them better than me.
We are in agreement. I believe the candles you refer to are candlesticks. I too use them to provide greater visibility than OHLC charts provide.
I've seen a lot of different trading methods and Japanese Candlestick Analysis is probably at the top of the list of methods applied incorrectly and/or misinterpreted. Further, most traders that use it...tend to ignore market context as if candlestick patterns defines the price action when in reality a trader should already be able to define the price action prior to the appearance of any candlestick pattern trade signal. Thus, most using Japanese Candlestick Analysis should use it as a secondary tool to confirm another trade signal or used to help identify some price actions as a key change in supply/demand...to be used as support/resistance areas. Simply, it's very useful but not in the way that most traders have been using it. Last of all, as stated earlier, most traders using candlestick charts are not using Japanese Candlestick Analysis. Mark
<b>when in reality a trader should already be able to define the price action prior to the appearance of any candlestick pattern trade signal. </b> Huh? You must be a book writer or seminar promoter. That's the only folks that this type of cplanation would make sense. Others, who have not been brainwashed Read the books of people who have thoroughly tested candlesticks like altuchers trade like a hedge fund-- for the truth
Hey Jack, Here's more simpler explanation considering the other one went over your head. Lets pretend you're a trend trader...if you can't tell if the market is making higher highs or lower highs...candlestick patterns aren't going to help you. Also, lots of testers out there that say it works alone and others that say it doesn't work. I'm in neither camp...I say don't trade them blindly via ignoring market context (see example discussions about such @ http://www.traderslaboratory.com/forums/f34/do-candlesticks-work-7900.html, http://www.traderslaboratory.com/forums/f104/have-you-ever-seen-morning-star-8995.html) The above threads are also perfect examples to show a common problem with testing candlestick patterns. If the identification is incorrect or used incorrectly...garbage in results in garbage out. By the way, I don't write books about candlestick patterns nor do I give seminars about candlestick patterns. However, you seem to spend a ton of your time here at ET via averaging over 7 message posts per day. Thus, I think you have the time to read a useful Japanese Candlestick Analysis thread here at ET called "Trading Hammers Revisited" @ http://www.elitetrader.com/vb/showthread.php?s=&threadid=52880 The above links contain useful information about Japanese Candlestick Patterns not found in any book, seminar or webinar. Just as important, it won't cost you a penny, no book to rent or order from amazon and no seminar to fly/drive too. However, I must apologize in advance that I didn't offer any donuts and freshly squeezed orange juice upon your completion of reading the above threads. Mark
Candlestick patterns are a very tiny subset of price patterns. Almost all candlestick patterns known to traders have already lost any edge they had before they were popularized. Many price patterns still retain their edge because this style of trading is not very popular. Many of those price patterns that retain their edge are contrarian formations, where you buy a correction for example. Michael Harris is a price pattern guru. Some of the price patterns for futures he included in a book he published in 1999 - I think around then - still work well and make money. His software Price Action Lab - known as APS before - can find tons of those patterns. This is the link to a post where intradaybill uses the software to find patterns but also to determine the best R:R ratio http://www.elitetrader.com/vb/showthread.php?s=&threadid=212017 I think there is no reason to even talk about candlesticks when price patterns offer so many more possibilities.
Japanese Candlestick Analysis were designed and intended for discretionary trading...not systematic trading (codes) although many have tried to use it as such to simplify their use. However, I do agree with you that many of the Japanese Candlestick patterns are involved in key price areas of many different types of price patterns although you actually said "very tiny subset of price patterns". Thus, they are an excellent confirmation tool of another trade signal. Simply, a trader needs to make a choice. To apply or test them alone with most knowing what the results will most likely to be (not very good). Other options is too apply them as a confirmation tool to another price pattern or to identify key price areas to be looking for price patterns. Thus, don't worry about the edge issue because you shouldn't be using them alone in my opinion. Instead, use them as a way to help identify key price areas into another type of price action pattern, change in supply/demand, support/resistance or whatever. By the way, many candlestick patterns can be used in contrary formations as in your example to buy a correction. For example, in the Trading Hammer's (revisited) thread here at ET, I discuss and show chart examples of why particular type of variations of the Bullish Hammer pattern are useful to buy into different types of price patterns including contrary formations as you call them. Last of all, I'm not a fan of mechanical, automation or systematic trading (been there and done that back in the 90's). Thus, coding price patterns, candlestick patterns or anything else not worth the effort unless for pure academic reasons (just my opinion from personal experiences). Yet, I know a few out there have solved the puzzle via systematic trading. Thus, if it works for you as in profits...congrats. However, the discretionary route of using Japanese Candlestick Analysis works just fine for me too. Therefore, try to look beyond edges all by itself as in codes. Think outside the box. Mark
I've written this on ET before and don't know if you'll find it interesting or not but even though almost all charts that are printed here in Japan use candlesticks, very few Japanese do candlestick analysis. You can go to a bookstore and find a zillion TA books on indicators and the like but you would have a hard time finding even one on candlestick analysis. Maybe the ones who invented it know something the west hasn't discovered yet!
Yeah, we talked about this before. It's primarily due to a marketing thing. Japanese Candlestick Analysis books has been primarily marketed in the western countries...not in Asia even though it originated in Asia. In fact, in Japan, you can find very old books, history books or excerpts mentioning rice traders using Japanese Candlesticks but you are going to need to look very hard to find a book by Steve Nison (the author that brought Japanese Candlestick Analysis to North America). Therefore, understandable, it makes sense to market something as new education information in North America instead of trying to market it in Asia. Also, remember, the ones the invented it was in the 1600's and they were rice traders using supply/demand although it wasn't called supply/demand at the time and they weren't coders. Below info can be found on many websites about the history of Japanese Candlestick Analysis. Also, many Japanese history books do contain in-depth information about anything mentioned below especially the history about rice traders. The History of Japanese Candlesticks Throughout Candlestick Analysis you are going to find many war-like references. Between 1500 and 1600 the territories of today's Japan were at constant war. Each daimyo (feudal lord) was in constant contention to take over their neighbor. This one hundred year period is known as Sengoku Jidai or the "Age of Country at War". This was a definite period of turmoil. It slowly came to order in the early 1600's through three dynamic generals - Nobunaga Oda, Hideyoshi Toyotomi, and Leyasu Tokugawa. Their combined leadership prowess has become legendary folklore in Japan's history. Their achievements are described as: "Nobunaga piled the rice, Hideyoshi kneaded the dough, and Tokugawa ate the cake." All the contributions from these great generals unified Japan into one nation. Tokugawa's family ruled the country from 1615 to 1867. This become known as the Tokugawa Shogunate Era. While the Candlestick methodology was being developed, a military environment persisted in Japan. Understandably, the Candlestick technique employs extensive military terminology for its explanations. Investing is correlated to battle. It requires the same tactical abilities to win. The investor has to prepare for winning trades as a general prepares for battle. A strategy is required, the psychology of coming events have to be thought through. Competition comes into play. Aggressive maneuvers and strategic withdrawals are required to eventually win the war - to achieve financial success. As stability settled over the Japanese culture during the early 17th centuy, new opportunities became apparent also. The centralized government lead by Tokugawa diminished the feudal system. Local markets began to expand to a national scale. The demise of local markets created the growth of technical analysis in Japan. Osaka became regarded as Japan's capital during the Toyotomi reign. Its location near the sea made it a commercial center. Land travel was slow and dangerous, not to mention costly. It became a natural location for the development of the national depot system, assembling and disbursing supplies and market products. It rapidly evolved into Japan's largest city of finance and commerce. Osaka, the "Kitchen of Japan" with its vast system of warehouses, eventually established an atmosphere of price stability by reducing regional imbalances of supply. Osaka became the profit center of all Japan, completely altering the normal social standards. In all other cities the quest for profits was despised. Japan was composed of four classes, the Soldier, the Farmer, the Artisan, and the Merchant. It was not until the 1700's that the merchants broke down the social barrier. "Mokarimakka" which means " are you making a profit?" is still the common greeting in Osaka today. Under Hideyoshi's reign, a man named Yodoya Keian become a successful war merchant. He had exceptional abilities to transport, distribute and set the price of rice. His reputation become so well known, his front yard become the first rice exchange. Unfortunately, he became very wealthy. Unfortunate because the Bakufu (the military government lead by the Shogun) relieved him of all his fortune. This was done based upon the charge that he was living a life of luxury beyond his social rank. This was during a period in the mid 1600's when the Bakufu was becoming very leary of the merchant class. A number of merchants tried to corner the rice market. They were punished by having their children executed. They were exiled and their wealth was confiscated. The Dojima Rice Exchange, the institutionalized market that developed in Yodoya's front yard, was established in the late 1600's. Merchants were now capable of grading the rice, and negotiated setting the market price. After 1710, actual rice trading expanding into issuance and negotiating for rice warehouse receipts. These become known as rice coupons, and were the first forms of futures. The Osaka rice brokerage became the foundation for the city's wealth. 1,300 rice dealers occupied the Exchange. Due to the debasing of coinage, rice became the medium of exchange. A daimyo in need of money could send his surplus rice to Osaka and get a receipt from a warehouse. This receipt (coupon) could then be sold. As with many daimyo, cashflow problems could be eliminated through this method. Sometimes many future years of crops were mortgaged to take care of current expenses. With the rice coupon becoming an actively traded entity, the Dojima Rice exchange became the world's first futures exchange. Rice coupons were also called "empty rice" coupons, rice that was not in physical possession. Rice futures trading became so established in the Japanese marketplace, that in 1749, 110,000 bales (rice traded in bales) were freely traded while there were only 30,000 bales in existence throughout Japan. It was during this time period that Candlestick trading became more refined. Candlestick analysis had been developed over the years simply due to the tracking of rice price movements. However, in the mid 1700's they were really fully utilized. "The god of the markets" Homna came into the picture. Munehisa Homna, the youngest son of the Homna family, inherited the family's business due to his extraordinary trading savvy. This at a time when the Japanese culture, as well as many other cultures, thought it common that the eldest son should inherit the family business. The trading firm was moved from their city, Sakata, to Edo (Tokyo). Homna's research into historic price moves and weather conditions established more concrete interpretations into what became known as Candlesticks. His research and findings, known as "Sakata Rules" became the framework for Japanese investment philosophy. After dominating the Osaka rice markets, Homna eventually went on to amass greater fortunes in the Tokyo exchanges. It was said that he had over one hundred winning trades in a row. His abilities became legendary and were the basis of Candlestick analysis.