Hi Ron - I won't get into a war on this but my consideration was that I was UNDER-reacting. Yes, I have read some academic studies, and I can't say they did not help me in my trading: its impossible to prove either way. On the other hand, only an academic would dream up the Efficient Market and Random Walk Hypotheses : and it was academics (top ones at that) that were largely responsible for the LTCM debacle.
I listened to an interview with the guy who wrote this book: http://tinyurl.com/2fc9wl Supposedly, he has backtested candlesticks with different qualifiers (such as volume and price ranges) and found some that work well. I don't think Nison, Bigalow or any other "candelstick gurus" have shown any extensive backtesting results.
But you implied that a trader with a winning system can lose money because of other factors. I tell you then that most traders, like the people at ET, are not stupid and know the factors. The problem is that they do not have or seem not able to get a winning system. This makes up 95% of the reasons 95% of traders lose money. Everything else can fit in a seminar because some can convince the losers that it is not their system but their physchology, money management, etc that is the problem. They of course avoid dealing with the hard issue which is developing a winning methodology for entry and exit points on a chart. The things you say carry some value for rookies but for experienced traders, like the majority of people in ET are, what is missing is a dynamic and robust system that makes consistent profits, whether that is mechanical or simply a heuristic approach. Bill
The most stringent backtesting which resticts itself to taking candlestick entry and candlestick exit signals is bound to show the methodology to be a loser. That's because candlesticks should be used as a tool in a holistic approach, as should MAs as should stochastics, as should S/R levels, as should head-and-shoulders or any other indicator / pattern recognition techniques you care to mention. TA is an art, not a science, and your insistence on the scientific approach applied in isolation to one tool is spurious.
Here it is again... A trader with a method that backtest shows has a positive expectancy must have those other variables in place to be able to exploit his/her winning system. In fact, you've agreed on one such variable which is proper capitalization although you simply said MONEY. Also, the issue isn't what traders know... The issue is why can't most apply it. I think this is similar to why most traders can't duplicate similar like results when they trade with real money in comparison to their simulator trading or backtest results. Simply, when real money is on the line... All those other variables I mentioned become a huge factor in comparison to them not being a factor at all during simulator trading nor backtesting. Also, Yes, I do agree that most trader do not have a winning system. Mark
Not true at all. This experiment gave some bright people winning systems. Few won. YOU CAN BE RIGHT AND STILL LOSE MONEY Ralph Vince once did an experiment with 40 PhDs. They were asked to play 100 trials of a simple computer game in which they were guaranteed to win 60 percent of the time. They were each given $1,000 in play money and told to bet as much or as little as they wished on each of the plays. How many of them made money? Only 2 of the 40 participants â a mere 5 percent â had more than their original $1,000 at the end of the game. None of the PhDs knew about money management (the effect of bet size) on the performance of such a game. For example, if they had wagered a constant $10 per bet, they would have ended up with about $1,200. The results of the PhD experiment may surprise you. In fact, it was actually a good example of human nature. People tend to bet more after an adverse run, and less after a favorable run. Let's say your first three $100 bets are losers. Already you're down to $700. You think, "Since I've had three losses in a row, the odds are 60 percent in my favor, I'm sure it's time for a win." So you raise your bet to $400, and suffer and even bigger loss. The PhDs didn't understand the effect of position sizing on your success.
Sheesh, I was just quoting the author. I didn't write the book. But it's clear you have no idea what he has tested or how he trades, so I take your post with a tiny pinch of salt...
I read Stephen Bigalow's two candlestick books (www.candlestickforum.com) and find that very useful when used in conjunction with other technical indicators. The above mentioned books use a technique of major candlestick signals and stochastics to determine trade entries. The nice thing is you can use the signals to apply a stop so that if the signal is not confirmed you will not lose too much. However, if you learn the signals and go back and look at your charts you will see how many times the signals work. I use 1,5, and 15 minute charts to day trade and find that signals on 5 minute and 15 minute charts are more accurate. I use your support/resistance, moving averages, fibs, bollinger bands, stochastics, and candles and you should see some nice results. In fact when I ignore the signals because I have a long or short bias they prove me wrong so many times. Nobody said trading would be easy. Try them out! Candlestick Follower