[Sledge]

I would like to start a discussion if I may regarding Price Action at a SINGLE candle perspective. Dissecting the bars so to speak (I know Db does this with much skill) This will be very "Candlestick 101" but I would like to discuss this from a different perspective than what appears to be out there currently.

Hopefully, after my post- you'll get the idea of what I'm trying to accomplish:

I have searched and searched without any real fruit of trying to find a very basic discussion about reading single candles. There are a million sites dedicated to "candlestick patterns"-- but that isn't what I'm trying to accomplish.

A better term would be "Candlesticks in Context" As an example: If you see a Dragonfly Doji form at a market top- it is a strong bearish signal. That exact same candle (size, spread etc) formed at a market bottom- is a very strong bullish signal. Obviously, this is the most elementary example I could use to make the point.

My ultimate goal is to learn to read SINGLE bars price action as they develop and/or close for them to "speak to me." As another example a nice flat row of doji's and spinning tops at a market bottom- the "sum of all the bars" equals accumulation. Hopefully I am explaining myself appropriately.

What I would like to get to with this thread is:
1. Looking at Single Bars and discussing individual bars and their psychology IN CONTEXT
2. BUT BUT BUT- keeping in mind of the greater "landscape" of the chart.

I'm not looking to focus on one single bar necessarily to trigger trades in this thread (there is a lot of discussion about that on the web)

I was even thinking of going so far as to make up some type of "flash cards" it sounds like "trading 101" type stuff, but I think it would be beneficial- Just to drill myself- staying with the Dragonfly Doji example. If someone popped me that card and said, "What's your next move" the correct answer to the "card" would be "Where on the chart did it form?"

It is sort of taking the very basics of price action and going deeper into it at the same time.

You see a Spinning top form very quickly off a recent top? That means profit taking is occurring etc. See a down candle with a long tail just one or two bars out of the trend pullback- most likely that is the professional $ moving in to "put on the brakes" - but the downward trend most likely will continue- it is a "warning bar" of sorts- it is this type of discussion I hope to spark.

Just an intro Chart to show you what I mean:



A: You see just prior to it being a Wide Spread Bar with Buying on the bar, this bar (Bar A) shows another attempt to reach lower and failure. After a few bars of wrangling- you see the up move.

B. Now this isn't Identical but at bar "B" you have a very similar bar to Bar "A” But now at a Market Top- this bar has a completely different meaning and it is a "warning sign" of impending downward movement to come. We know this because of the preceding two bars show effort without results.

C&D: These bars show the "brakes being applied” These are not bars to short without further confirmation- they are bars that if you are short- you would pay attention to as a warning to tighten up stops or be ready to close your position soon.

Hope the text plus the chart assist in showing what I would like to try and discuss.
Aaron

[trader273]

Here is how i view trading candles. The most important thing is to find the support and resistance. Be it Market profile, trendlines, etc. For the chart I attached i just used the highs and lows. There is really no need to examine each and every bar, imo. Just need to watch the candles when they are approaching what you have defined as support and resistance.

[Sledge]

Excellent start to the thread.

trader273: I know that the norm is to look for the S/R points, and I agree with you 1000% that it is imperative to locate them and utilize them in trading. BUT I would really like to discuss the candles in the thread individually if possible. This exercise may be harder than people think it will be.

What I would like to get too is analyzing each candle and then taking a grouping of the individual candles to collectively see the bigger picture.

So as an example say we just take 10 candles to start. We analyze the 10 candles 1-by-1, then at the end of analyzing all 10 candles individually- what do they tell us collectively?

daedalus:
Yes I actually trade hourly and Daily candles. I know the larger the timeframe- the better the signal.

For our purposes though, this should be fine to use a 5 min, hour, 4 hr or Daily chart. Analyzing the meaning of each bar in context can be accomplished on any timeframe.

Aaron

[trader273]

Originally Posted by Sledge »

What I would like to get too is analyzing each candle and then taking a grouping of the individual candles to collectively see the bigger picture.

What you are talking about is blending of candles. If you want to see four hourly candles together, open a four hour chart.

Originally Posted by Sledge »

So as an example say we just take 10 candles to start. We analyze the 10 candles 1-by-1, then at the end of analyzing all 10 candles individually- what do they tell us collectively?

Aaron

Well, have fun with that. I think you are making this much harder than it needs to be. Bullish candles in a downtrend do not really mean that much if its not at an area of support. Now some might work, but if you get caught in a trend, good luck.

I don't see what benefit would come about from analyzing every candle. If you have read any candle book, one of the first things they talk about is using candles in the overall technical picture. What you are doing is zooming in dramatically on each and every candle and ignoring the big picture.

[Sledge]

Originally Posted by trader273 »

What you are talking about is blending of candles. If you want to see four hourly candles together, open a four hour chart.

Well, have fun with that. I think you are making this much harder than it needs to be. Bullish candles in a downtrend do not really mean that much if its not at an area of support. Now some might work, but if you get caught in a trend, good luck.

I don't see what benefit would come about from analyzing every candle. If you have read any candle book, one of the first things they talk about is using candles in the overall technical picture. What you are doing is zooming in dramatically on each and every candle and ignoring the big picture.

I'm not trying to spark debate with anyone, I'm just attempting to view this landscape a bit differently than it has been done in the past. Let me try to explain it this way:

When you learn to play an instrument. You go through the almost painful experience of learning- one note at a time. That one note you have to learn what it not only looks like, but also what it sounds like correct? Ok after you master the one note (reading it and playing it)- you can move onto another note. Over time you have all of the "notes" learned and memorized. You know what they look like in print and you know what they sound like in your mind.

After your training of each individual note- you can pick up a piece of sheet music and can acutally read the paper and hear the song start to play in your mind- long before fingers meet the strings. Without the "boring" part of learning each individual note- a piece of sheet music may as well be a foreign language to you.

I'm just trying to spark further conversation about the "notes" before I attempt to play the entire piece.
Aaron

[trader273]

Then the mod should change the thread title then. This is anything but candles in context. It should be named, candles: one by one, or Micro-view using candlesticks. I dont want a newbie coming here and then getting focused on each candlestick, because they think thats what candles in context are, when in reality whats being talked about here is the complete opposite.

[MC]

Originally Posted by trader273 »

Then the mod should change the thread title then. This is anything but candles in context. It should be named, candles: one by one, or Micro-view using candlesticks. I dont want a newbie coming here and then getting focused on each candlestick, because they think thats what candles in context are, when in reality whats being talked about here is the complete opposite.

I agree that looking at each candle, indicator level or anything in isolation renders the conclusion near useless. The market is all about context, it's used to derive perceived valuation and place a high probability bet. How can 1 candle fit the title of "in context"?

[darthtrader2.0]

Originally Posted by MC »

I agree that looking at each candle, indicator level or anything in isolation renders the conclusion near useless. The market is all about context, it's used to derive perceived valuation and place a high probability bet. How can 1 candle fit the title of "in context"?

See this is actually why my brain refuses to get into candle patterns. If one unit of representing data does not have meaning but 3 do...then there should be a better way of representing data by combining what gives those 3 units meaning.
To me a good example is the good ol doji on a 5 minute chart.
Instrument X opens at 100, volatility is high for the day so a massive spike on the NYSE TICK sweeps instrument X to 105, 30 seconds later price falls back to 100 and drifts down over the next 2 minutes to 95, then slowly drifts back up over the next few minutes to close near 100.
Another day Instrument X opens at 100, volatility is low for the day. Instrument X opens time wise 5 ticks below the top of a range, price sits between 99 and 101 for 4 minutes, the test of the top of the range comes quickly after 4 minutes, price is rejected down to 95 quickly...buyers step and defend the top of the range and move price back to 100 over the next minute..bar closes, 20 seconds into the next bar the range breakouts and price blasts to 110.
Both are dojis, both are totally different information wise. Obviously a skilled candle trader would pick up on the totally different context of the doji in those two situations, the newb would not. What I question though is that there is not a better way to summarize the movement of the underlieing ticks that make up both dojis, considering that if you changed your chart to a 1 minute candle chart, you would see a candle pattern and not a doji, and would see a different candle pattern in each instance.