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Old 07-30-2007, 06:58 PM   #1

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Step 1: Identify the candlestick 'patterns' or 'formations'

In an effort to educate and stimulate some discussion, I'm going to try to put together a few steps for candlestick trading success!

Step 1: Identify the candlestick 'patterns' or 'formations'

There are a variety of websites and books out there talking about candlestick patterns or formations.

Some sites out there with some free stuff that can at least get you started in pattern recognition. Stockcharts.com in particular has a nice section on candlesticks (click hyperlinks):

Main Page
Intro To Candlesticks
List of Common Patterns


That's a few free links from stockcharts.com. Those are pretty good for being free. Keep in mind that is not meant to be a substitute for books, videos and live seminars. As mentioned previously, I like the work of Steve Nison.

So the very, very first step is to be able to look at a candle(s) and identify if there's a potential candle pattern or formation there. That's step 1. I know that seems easy, but it can take some practice, esp in real-time and esp in day-trading. I would suggest looking at some DAILY charts and just start flipping through charts of stocks to see what you can recognize. Don't worry about stock charts if you just trade futures, you just want to train your eyes to see patterns and formations.

And speaking of day-trading, there is one important consideration when using candlestick analysis in a day-trading environment - YOU MUST REMAIN FLEXIBLE IN YOUR DEFINITIONS OF CANDLESTICKS IN REAL-TIME, DAY-TRADING. The lower the chart timeframe, the more flexible you must be. And what I mean is that if you are only looking for picture perfect hammers, you might be waiting a while for a signal. As we get more charts posted, this will make more sense.

And from candlestick recognition, there are a couple schools of thought of how trade them:

1) Trade any of the patterns if your parameters are met.
2) Trade certain patterns based on your preference and testing.

This is going to be an integral part of your trading plan and there's no right answer here. It really is dependent on how you build your trading plan and what your testing has shown. I'm not going to do the work for you, so don't bother asking.
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Old 07-30-2007, 07:11 PM   #2

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Re: Step 1: Identify the candlestick 'patterns' or 'formations'

Thanks Brownsfan. This really helps me alot. It's always better to hear from someone who actually uses the methods, etc than just reading a book anyways. It gets filtered through experience.
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Old 07-30-2007, 08:15 PM   #3

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Re: Step 1: Identify the candlestick 'patterns' or 'formations'

Quote:
Originally Posted by brownsfan019 »
In an effort to educate and stimulate some discussion, I'm going to try to put together a few steps for candlestick trading success!

Step 1: Identify the candlestick 'patterns' or 'formations'

There are a variety of websites and books out there talking about candlestick patterns or formations.

Some sites out there with some free stuff that can at least get you started in pattern recognition. Stockcharts.com in particular has a nice section on candlesticks (click hyperlinks):

Main Page
Intro To Candlesticks
List of Common Patterns


That's a few free links from stockcharts.com. Those are pretty good for being free. Keep in mind that is not meant to be a substitute for books, videos and live seminars. As mentioned previously, I like the work of Steve Nison.

So the very, very first step is to be able to look at a candle(s) and identify if there's a potential candle pattern or formation there. That's step 1. I know that seems easy, but it can take some practice, esp in real-time and esp in day-trading. I would suggest looking at some DAILY charts and just start flipping through charts of stocks to see what you can recognize. Don't worry about stock charts if you just trade futures, you just want to train your eyes to see patterns and formations.

And speaking of day-trading, there is one important consideration when using candlestick analysis in a day-trading environment - YOU MUST REMAIN FLEXIBLE IN YOUR DEFINITIONS OF CANDLESTICKS IN REAL-TIME, DAY-TRADING. The lower the chart timeframe, the more flexible you must be. And what I mean is that if you are only looking for picture perfect hammers, you might be waiting a while for a signal. As we get more charts posted, this will make more sense.

And from candlestick recognition, there are a couple schools of thought of how trade them:

1) Trade any of the patterns if your parameters are met.
2) Trade certain patterns based on your preference and testing.

This is going to be an integral part of your trading plan and there's no right answer here. It really is dependent on how you build your trading plan and what your testing has shown. I'm not going to do the work for you, so don't bother asking.
That is an excellent point Brownsfan. If you are too rigid in your definition of a candle you will let many fine opportunities pass you by. One common thing I notice about doji's is that many traders only accept them as signs of indecision of they are textbook, a Narrow Range Bar for instance shares much of the same psychology.
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Old 07-30-2007, 08:25 PM   #4

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Re: Step 1: Identify the candlestick 'patterns' or 'formations'

I agree, I never have been a big fan of the ones that make candlestick analysis into a rote process of following the candles exactly without actually thinking about what they mean. Thanks again for the info
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Old 01-15-2008, 12:03 AM   #5

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Re: Step 1: Identify the candlestick 'patterns' or 'formations'

Wonderfully put together.....just fabulous information!!!

Thanks,
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Old 07-07-2008, 02:18 PM   #6

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Re: Step 1: Identify the candlestick 'patterns' or 'formations'

cool works dude
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Old 07-08-2008, 04:06 PM   #7
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Re: Step 1: Identify the candlestick 'patterns' or 'formations'

Quote:
Originally Posted by brownsfan019 »
And speaking of day-trading, there is one important consideration when using candlestick analysis in a day-trading environment - YOU MUST REMAIN FLEXIBLE IN YOUR DEFINITIONS OF CANDLESTICKS IN REAL-TIME, DAY-TRADING. The lower the chart timeframe, the more flexible you must be. And what I mean is that if you are only looking for picture perfect hammers, you might be waiting a while for a signal. As we get more charts posted, this will make more sense.
BF,
Awhile ago you were musing about the possibility of automating your trading.

Since - by your own reckoning - your method of candlestick trading is largely DISCRETIONARY in nature, would this preclude mechanizing your setups as a result?

-fs
 
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Old 07-08-2008, 06:51 PM   #8

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Re: Step 1: Identify the candlestick 'patterns' or 'formations'

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Originally Posted by forsearch »
BF,
Awhile ago you were musing about the possibility of automating your trading.

Since - by your own reckoning - your method of candlestick trading is largely DISCRETIONARY in nature, would this preclude mechanizing your setups as a result?

-fs
Not necessarily although it will not be easy. Hence the reason it has not been worked on.
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