The Perpetuated Fraud of Candle Charting

Discussion in 'Technical Analysis' started by Fleming Snopes, Dec 7, 2009.

  1. First of all, don't make the mistake of getting mixed up about with the terms of candlestick chart with candlestick patterns because most traders that use candlestick charts do not use candlestick patterns. In fact, I once did two surveys on this many years ago amongst a TradeStation user group and a Qcharts user group (+1400 voters)...on average about 62% of the traders that use candlestick charts did not use Japanese Candlestick patterns as part of their trade methodology. I've also done other quick surveys in random free chat rooms and it's also in the +60% range.

    As to the issue about price noise. Every chart interval has noise and all chart intervals will change in their noise level as volatility changes or as supply/demand changes from one trading day to the next trading day.

    Simply, if a trader has problems with the price noise level on a particular chart interval...that's a trader that doesn't have the ability to recognize the noise until after the fact instead of as it is occuring. There as several old threads here at ET about how to recognize price noise as it is occurring instead of long after the fact. It could also be a trader that doesn't have discipline to ignore trades in price noise as identified as such as it is occurring.

    Also, via other surveys, our reaction skills change as the chart interval is lowered and things are happening much faster. Most traders cannot cope with such, feel stressed and get lost in the forrest sort'uv speak in comparison to higher chart intervals. This also happens on line charts and bar charts. Therefore, it's not an isolated issue involving candlestick charts nor Japanese Candlestick patterns.

    Further, as noted by someone in this thread, the reliability of candlesticks increases as long as you don't use the stuff by itself because all by itself it's not reliable. Also, I've done statistical analysis on most candlestick patterns (reliablility is low) and discover that many individual patterns have their own sub-groups. The reliability changes dramatically within these sub-groups. For example, not merged with any other method, one particular Bullish White Hammer pattern has only a 31% reliablity all by itself while another type of Bullish White Hammer pattern has a 48% reliability. I've discussed these particular types of patterns in an old thread here at ET that was started by another ET member (don't remember the link but if you dig deep...you'll find it).

    Also, as noted in another old thread here at ET started by someone else...change the trade management (all that stuff after entry) and the reliability levels also changes.

    However, getting back to the point made by Fleming_Snopes fraudulent application when not using something as it was originally designed...it's only human nature for a trader or any other profession (e.g. airplane designer) to try to improve on the original. For example, that's like saying anyone using today's new computers is fraudulent because we no longer use those old Altair 8800 pc computers. :D

    http://www.computerhope.com/issues/ch000984.htm

    http://en.wikipedia.org/wiki/Altair_8800

    http://www.computerhope.com/jargon/a/altair.htm

    Yeah, sure, some make changes to better improve the marketing or sales of something for profit. That's what data vendors do (e.g. eSignal, CQG, Bloomberg et cetera) by telling you about all the bells & whistles you get when we use their service and most (not all) of that stuff is used much differently or advertised then it was originally designed.

    Heck, even data vendors change their data start times or close times of exchanges or particular trading instruments that's different from the original data they get directly from the exchanges. For example, QCharts folks insist that their CME data has a closing time 4:00pm est on the regular session chart instead of 4:15pm est. Thus, if you're a trader of Emini ES or Emini NQ and you're using the regular session chart...your data stops at 4:00pm est. That's not fraudulent unless they make an effort to convince us that's the actual close time of the CME.

    Mark
     
    #11     Dec 8, 2009
  2. Thank you all for expressing your opinions. As an agitator I do so love getting my establishment betters riled up. Interesting that no one commented on the central feature, which is compressing a fast chart to the scale of a slower chart so you can actually see what is going on inside those accurstly opaque candles. A happy upthrusting tohbo to you all. I will wager also that no one defending candles and candle patterns has ever read the granddaddy Shimizu.
     
    #12     Dec 8, 2009
  3. +1. He cannot stand being being away from here.

    After all, there are lots of parents with the last name of Snopes who named their kid "Fleming."
     
    #13     Dec 8, 2009
  4. Buy1Sell2

    Buy1Sell2

    Technical Analysis works on all time frames. Those that claim otherwise are just ones that have had no success. A trader simply needs to relate the action to the movements on the higher chart and then you have it. Pretty simple stuff really. Thank you for your time. :)
     
    #14     Dec 8, 2009
  5. I'm glad you mentioned it being your opinion, because your opinion is wrong. Perhaps YOU cannot figure out how to use candles on lower frames correctly but do not ass-ume that no one else can :)

    again, CONTEXT is king. The VERY SAME candle (or bar) patterns in one context can lead to a very different outcome than the very same candle patterns in another context. This is probably your confusion, without understanding HOW to contextualize candle sequences properly, the outcomes are very much random.


     
    #15     Dec 8, 2009
  6. indexer

    indexer

    I use candles because they are easier to look at. Long wicks can tell you were some S/R is, but thats about it (for me). Never really tried to use the patterns.
     
    #16     Dec 8, 2009
  7. candlestick charts dont suck

    YOU suck
     
    #17     Dec 8, 2009
  8. That is why I use candles, easy on the eyes and it is what I'm used to which is probably the reason it's easy on the eyes. I do have less problem with noise on my longer time frame trades, week and longer. But I don't think candlesticks have anything to do with that.
     
    #18     Dec 8, 2009
  9. This is about the same argument that psychics and palm readers use. "Of course it works. Evidence? Well, I believe it to be true, so it must. You are wrong if you do not agree with us..."
     
    #19     Dec 8, 2009
  10. Ah, Fleming, you have hit upon the central problem of my intraday trading investigations so far.

    From the beginning, the question of phase shift has always nagged me. What happens to all your finely tuned analysis, your MAs or Keltners or whatever other mountains of technical crap you can pile on a chart if your nice, pretty little 15 minute bar has its open and close times shifted by 7.5 minutes? Or 5 minutes? Or 1 minute, 42 seconds? And on and on. What makes the price at the beginning and end of an arbitrary time period important enough to make it half the data on any given chart?

    The same problem plagues constant volume and tick charts. Why the hell do I care where the price was at the beginning and end of some arbitrary 233-tick period?

    For now, I have settled on range charts - hi/lo only, no wicks or bodies or dojis and hammers cluttering up my screen. I've looked at some of the P&F, renko, 3lb, and what not type charts as well...but this type of charting is exotic and not available on the cheap on an intraday basis (which is my primary concern right now, as I am only papertrading).
     
    #20     Dec 8, 2009