Constructing a candlestick trading plan

[Blu-Ray]

	Quote:	brownsfan019
	blu, Thanks for sharing your charts. I've highlighted in yellow all possible candle patterns that I see on your chart, not looking at anything else. Couple questions: 1) What market is this? 2) What tick setting is this?

Thanks Brownsfan for the analysis, the market is the DAX and its a 55Tick Chart.

I don't know if you think that might be too quick to learn on or maybe moving out to a larger timeframe to grasp the concept easier.

Thanks

Blu-Ray

[NihabaAshi]

	Quote:	Blu-Ray
	Here's some charts that happened today when my system fired off some signals, I'm trying to incorporate candlestick analysis to aid my decisions, but I'm not trading directly off candlestick analysis. First off, I'm a newbie when it comes to candlestick analysis, so go easy on me All charts are short term tick charts. 1st chart fired off a buy signal, but the two previous candles were trying to go higher but pushed down very fast in real time, then the signal was generated. I decided to step aside as although my system generated a buy signal, the candles were telling me otherwise. http://www.traderslaboratory.com/for...1&d=1187044986 2nd chart fired off a short signal but on that candle was also a dragonfly doji, so I passed on the trade, however would have turned out to be a winner. http://www.traderslaboratory.com/for...1&d=1187044986 3rd chart fired off a buy signal and also had the bonus of it being a hammer, I took the trade as it gave me extra confidence. http://www.traderslaboratory.com/for...lan-chart3.png I think basically what I'm trying to say is that I'm starting to look at candlestick patterns to filter my trades, I'm still very new to this candlestick analysis but it looks so promising that it's got my full attention. I've just ordered Steve Nison's book ( Japanese Candlestick Charting Techniques) so hopefully I can digest the concept better. Cheers Blu-Ray

Hi Blu-Ray,

Thanks for the charts.

Also, what's your primary trade methodology (generally without going into any in-depth details) so that we can understand better what your using candlesticks with.

For example, I know some scalpers using Japanese Candlesticks with their Market DOM analysis.

With that said, here are some things you should keep in mind as a new user of Japanese Candlestick Analysis:

* Start very slow. Thus, select only a few patterns to study, research and trade for the first year of using Japanese Candlestick Analysis and Hammer patterns are one of the best place to start because they provide a wealth of information such as new support/resistance zones.

For example is your 3rd chart, that Bullish Hammer pattern became an s/r zone via producing a swing point...a swing point that later had impact on another Bullish Hammer pattern about 23 intervals later.

Now take a look at your 2nd chart involving the Dragon Fly...scan backwards (to the left)...what do you see?

You see a lot of Inverted Hammers with long upper shadows producing a s/r zone that the Dragon Fly was able to exploit.

Simply, Hammer patterns involved in swing points represent Candlestick S/R Zones.

What about the 1st chart?

First of all, there's no confirmation signal or a s/r zone to give that Long Legged Doji support to push higher unlike the Dragon Fly in the 2nd chart that had an established resistance area from the prior price action involving Inverted Hammer lines.

Therefore, if Dojis or Hammers are involved in a swing point, regardless if you trade them or not...

Don't forget about them because they can help setup trades later in the trading day or provide excellent profit targets for other trades.

For example of profit targets, go back to your 2nd chart involving that Dragon Fly.

Now scan backwards about 13 or 14 intervals to those back to back (consecutive) Hammer lines.

Those Hammer lines produce a swing point that sent price upwards until the formation of the Dragon Fly.

Had you taken that Short positiong involving the Dragon Fly, you could have used those earlier Hammer lines as profit targets especially since those Hammer lines occurred after a WRB (red wide range body on your chart).

Therefore, hypothetically, you could have exited that Short signal (Dragon Fly) about 8 - 9 intervals later.

Once again, start slow especially now that you will soon get your hands on Steve Nison book.

Use the book as a Definition Only and not as a trading plan.

Further, your going to have access to many different types of patterns and the last thing you want to do is try to learn them all or try to apply them all.

Just pick a few patterns and in my opinion Hammer patterns are one of the best places to start.

That should keep you busy the first year of learning about Japanese Candlestick Analysis.

P.S. Eurex DAX is an excellent trading instrument for Hammer pattern trading.

[brownsfan019]

	Quote:	Blu-Ray
	Thanks Brownsfan for the analysis, the market is the DAX and its a 55Tick Chart. I don't know if you think that might be too quick to learn on or maybe moving out to a larger timeframe to grasp the concept easier.

Blu,
The speed of the chart is a consideration, so it really depends on how well you pick up on seeing the patterns in real-time. As Mark said, focusing on a small number is a good way to start. As you read Nison's materials, you'll see other patterns by default. Don't ignore them, but focus your energies on a small handful for now and learn them inside and out. And remember - recognizing the pattern is the first part. You still have to define stop placement, entry placement and profit target(s). We'll talk about this in another thread when I have some more time to put it together. For example, in your 3rd chart, there were 3 very profitable trades there. The question then becomes, what profit did you extract and why? Did you take the first hammer and then just let it ride or were you able to trade all 3 hammers and make 3 profitable trades as a result?

[Blu-Ray]

Brownsfan and NihabaAshi,

Thank you both very much for your analysis and advice, it is much appreciated.

My primary trade methology is basically scalping off S/R zones and also flip trades ( Thanks Walter ! ). As I said originally I am starting to notice the candlestick patterns at my S/R zones which are helping me, but I wasn't noticing the previous patterns as you have kindly pointed out.

I shall take your advice and concentrate on a couple of patterns and go from there.

Thank you very much

Blu-Ray