I think there is some validity to Bone's statement. In longer timeframes, candlesticks become more reliable. Many false signals generated in, for example, a 5 minute chart. BSAM
BSAM, I suppose the fact that daily candles include the last 30-45 minutes when the "pros" trade could make them more valid then intraday candles. But, without having done a study, I suspect that if you compared them on an equivalent time basis, there would be no more false signals with intraday candles then daily candles. For example I'd quess there would be as many false signals four days after a daily hammer, as 20 minutes after a 5 minute hammer. But that's my gut feel, I could be wrong. Maybe the faster pace of day trading makes intraday candles seem less dependable, if they are considered in isolation. But if a trader is able to see that an intraday reversal candle pattern is ocurring at a fib retracement level, or at a trendline or support/resis line, or at an "expected" reversal time in the trade day, I believe intraday candles can be very useful. So maybe we are just splitting hairs to say if candles are more or less useful for day vs swing trading. But I would not agree that they are not useful for day trading.
DeepHindsight, I agree with you that 2 colors are useful. But if you combine 2 colors plus hollow or solid, you get even more information at a glance: change in close vs open for the day, and change in close today vs close yesterday. The only place I've seen this scheme used is StockCharts.com (where I first saw it). Does anyone know of intraday charting software that has this option for portraying candles? Does RealTick?
My major peeve with candlesticks was the lack of information regarding the chronological order of the H/L. I guess I could have used more colors but it would have looked so tacky.
Daily and 5-minute mostly. Very occasionally 10 or 15-minute. I only use patterns on daily though. As someone else mentioned, patterns on intraday charts are kind of spotty.
Tech Analysis, The red and black (I would have preferred red and green) indicate the change in close today vs close yesterday: black = higher close today; red = lower close today. Whereas the hollow (or solid) show close higher than open (or close lower than open). Here's the link where they explain their scheme in more detail http://stockcharts.com/commentary/mailbag/mailbag20000809.html A solid black candle at the top of a rally would then indicate that the stock gapped up that day, but moved lower thru the day (while still closing higher than the previous day's close). Now, had it closed even lower still (lower than previous day close) it would then be a solid red candle. So really, the fact that a solid candle (of any color) appears with a higher open after a recent rally is the bigger signal of a potential reversal (more so if you believe MM's are able to gap up a stock they want to sell out of). Then whether that candle closes higher or lower than the previous day (resulting in the change in colors) may be considered a lesser signal. Various candle patterns deal with these options. One could argue that just solid/hollow candles portray the bulk of the information, and having two colors adds relatively little more info. I agree, but hey, since computers can easily do the extra work for 2 colors, I'd like the extra info. (The TC2000 folks don't agree with me). In fact, this thread has rekindled my interest in doing a little testing to see if there is a good probability in black solid candles preceding a decline. A scan for this can easily be set up (actually stockcharts has a pre-built scan for this). A hollow red candle after a selloff would be the reverse scenario. G'day davez