Here's a way 2 seemingly different "labels" of price action via Wyckoff and Candles are actually the same thing. First of all, in the Morris book, candle "patterns" (which are really principles of supply and demand) are divided into 2 groups, Reversal and Continuation. This is precisely Wyckoff, though he speaks of it in terms of accumulation/distribution (reversal) or re-accumulation/re-distribution (continuation). (In fact, this is also Edwards and Magee.) Now take for instance the Morning/Evening Star Candle Reversal pattern. Morris on the Morning Star: "...a long black body followed by a small body which gaps lower. The 3rd day is a white body that moves into the first day's black body." He elaborates somewhat further that "a downtrend has been in place..." but doesn't go much deeper than that. I think this is one of the problems w/his book, it's too shallow, he doesn't go far enough in his analysis of price action. Wyckoff does. A reversal is usually preceded by some kind of climatic behavior, an overbought/oversold condition in an established trend. This may be indicated by a sudden acceleration of the trend, increased volume and volatility and momentum, a break of a channel supply or demand trendline, wide spreads closing at the extremes relative to previous bars and occurring at significant areas of support and resistance, and/or so on... So on the first bar of the Morning Star pattern (bullish reversal), Wyckoff would be looking at possible cumulative climatic price action developing, then when the next bar is so relatively narrow this would suggest possible exhaustion of supply, or as Morris says, "indecision". Then the wide spread up (preferably closing near the high) on the 3rd day indicates, at the very least, an automatic rally, when the sellers have been exhausted, at least for the moment. Again, Morris is too confined, he doesn't elaborate as does Wyckoff, who describes the entire subsequent process of retracement, follow-thru, possible trading-range, and so on. Wyckoff also describes that there are infinite variations of this "pattern". Edwards and Magee, in their analysis of their famous "Island Reversal Pattern", write: "A compact trading-range, usually formed by a fast rally or reaction, which is separated from the previous move by an Exhaustion Gap, and from the move in the opposite direction which follows by a Breakaway Gap." So, that's Wyckoff, Morris, and E&M, all describing the same underlying price behavior in different terms. H
To the O.P., My experience with candles has been very positive and fulfilling. I think if you are just starting out and want a nice overview, the source that I have found that paid for itself within the first trade I made, Steve Nison's "Beyond Candlesticks", is as good a place to start as any. It may be simple and basic, but hey that's usually the best place to build a foundation from. I was able to pick up a copy of the book off Ebay, but still paid $55 bucks for it. I think I later checked Overstock.com and they had new copies for around $80. I have no affiliation with the book other than I used it to start trading candles with. Like I said, this is a good place to start and research. I use very simple indicators, both technical and fundamental, in conjunction with candles in my trading/investing and have found it to be more successful than just the indicators alone. As always, results will vary with user. If anyone tells you that they have the "Holy Grail" of investing, just walk away. Candles aren't the Grail, but I have found that they fit in well with my simple trading style and have also served me the best over time as far as charting. Even if you don't use candles on a regular basis, I think educating yourself as to their underlying principles is worthwhile. Good Luck and Have Fun!
I have a question that fits within the name of this thread, so here it is. NihabaAshi, you told me in a PM that TA is very subjective, however I was wondering if, and maybe I'm answering my own question here, but the longer you look out on a stock.. 4 weeks..4 months, gives a lot more "clearer" picture than say a 1 minute chart or 3 day chart because the noise has been filtered out to some degree. My question: Is TA still a 50/50 chance playing candle patterns on a 4 week / 4 month as it is on a smaller timeframe?. I think its not, but I wanna hear what you, and some others have to say. - nathan
Yes...my reference about the subjectivity of TA concerns any topic when there's no specific rules. Therefore, if your method involving TA (chart patterns, candlesticks, s/r levels, indicators et cetera) has specific rules for entry, exit, stop management and so on... It's not subjective. Also, your question assumes someone is using Japanese Candlestick or anything else about TA all by itself. I don't recommend that type of trading. Instead, to put the odds in your favor of having a profitable trading day... You need to understand what really is moving the markets (its not TA) along with learning how to manage your knowledge as you traverse from one trade to the next trade. Only then can you use TA as a confirmation trading tool to what you think is occurring in the market. Only then will it not be 50/50. Simply, when trading by Japanese Candlesticks or any other TA techniques while not understanding the market... Its like flipping a coin. Sure, good money management and good trade management after entry can put the odds in your favor even if you didn't understand the markets. Unfortunately most traders put all their chips on learning the TA first and then hope their trading account can survive long enough for them to learn the market itself. Simply, learn what moves the market, learn when most key price movements are most likely to occur (you don't need to be correct every single time)... You'll have the odds in your favor to exploit any particular aspect of TA of your choice. I myself choose Japanese Candlestick charts and candlestick pattern recognition because it gives me a more visual representation of supply/demand eventhough anybody can get the same information from any other aspect of TA or Bar Chart. Yet, its just secondary trading tool I use for confirmation to my primary method. Last of all, I recommend all to re-read hcour comments especially if your a beginner trader wanting to get involved in understanding supply/demand, price action only trading or both. Mark (a.k.a. NihabaAshi) Japanese Candlestick term
Hi, I am the guy writing one of the blogs mentioned above. (cashmasterblog) And I'm flattered anyone finds it useful For me personaly, the candlesticks were the light through the fog of over complication. But they need to be used in conjunction with other indicators. On their own, I agree that they are not enough - but they do help with confirming that what you suspect might be happening, is indeed taking place. Just my 2 cents
"Simply, learn what moves the market, learn when most key price movements are most likely to occur (you don't need to be correct every single time)... " What do you mean by "what moves the market" ?.. I track some things, that you'll see in the attached file. OR are you talking about fundamental and economic data which I do not follow.....as of yet. - nathan
... UGH, DAMN file... I track the semiconductor industry on a daily basis in its 5 parts: broadline integrated specialized equipment/materials memory chips I also follow the: NASDAQ QQQQ S&P 500 DOW SOX.X (the semi sector) on a daily basis as well and write down their daily flucuations. ------------ Because Intel is the only stock i follow 99% of the time, I write down its historic data everyday, and every 3 days, I average that data as you'll see below. Intel historic data ( started 4/3/06) date open high low close 4/25 18.94 19.20 18.75 19.06 4/26 19.15 19.58 18.60 19.49 4/27 19.35 20.20 18.60 20.08 Average OHLC data for these three days listed below: 4/25-4/27 19.47 19.57 19.29 19.37 - nathan
* Key Economic Reports (U.S., Europe and Asia) * Regular Schedule Market Events * Key World News Stories For example, since Oil is such a hot topic... It pays to monitor the Oil Index charts. The above references are for futures traders. If I was a stock trader, I would put more emphasis on industry/sector analysis as an additional concern. Mark
Candlestick, if you see through, is merely price action. If you believe past & current price action (ie how it performs in price) have predicting values over the future, candlestick will always work, no doubt! Candlestick is just a visual version of price action. It's an eyecandy which help us spot trends/continuations/reversals easily. Actually candlestick is no better than a bar, except that it is more visually appealing. If you believe in technical analysis, you shouldn't discard the value of candlestick (price action). But you just can't interpret them straightforward as most basic candlestick books are trying to teach you (stupidly). Eg: you won't read it as bullish (and expect it to rise sky-high) simply because the price is rising and close high one day (white candle).
Your recommendation sounds great. but do you know any site which provides good commentary/analysis of candlestick patterns? If so, are they free? If not, how much? I look at the chart, pattern, pirce, volume to trade. I won't trade solely on indicator. But indicators may be used as confimation/filters once in a while. However I don't wish to search by Google either. I have no idea about the quality of the blog. Sorry to hear that.