[Dinerotrader]

I am new to candlesticks so may be a silly question but they seem very much intended to be used on a daily chart with real open and close prices. How does arbitrary open and close prices used in candles on a 5 minute chart of the ES mean anything? The actual close of the market really does affect the way millions of investor's trading strategies since being out or in the market during close hours bears risks so it makes sense to me that daily candles would visualize price action/sentiment/etc. appropriately. I just don't get candles on smaller time frames yet.
I would greatly appreciate your thoughts.

[brownsfan019]

As I've said many times here, the lower the timeframe, the less reliable candle patterns by themselves are. You MUST use them in conjunction with other tools - I would recommend defining support/resistance and then use candles to aid in your trading.

For example - if you see a hammer and just a hammer randomly on a chart, that's nothing IMO. Now if you see a hammer at the previous day high or low, along w/ some other support/resistance, then you might have something there.

In the article referenced in this thread, the author uses moving averages to use w/ candlesticks.

[Dinerotrader]

brownsfan019-
Do you still use volume candles at all? I was reading some posts from back in 2007 in which you seemed very positive on using candles based on volume instead of the passage of time. I really value your opinion on candle reading and you normally mention 5minutes candles currently so did you decide after time that volume candles just didn't add value to your setups? Thanks.

[ensoniq]

Originally Posted by Dinerotrader »

I am new to candlesticks so may be a silly question but they seem very much intended to be used on a daily chart with real open and close prices. How does arbitrary open and close prices used in candles on a 5 minute chart of the ES mean anything? The actual close of the market really does affect the way millions of investor's trading strategies since being out or in the market during close hours bears risks so it makes sense to me that daily candles would visualize price action/sentiment/etc. appropriately. I just don't get candles on smaller time frames yet.
I would greatly appreciate your thoughts.

I would tend to agree with the point you make here. Not many people seem to realise that a five minute candle is a completely arbitrary timeframe that they are trying to impose on the market. Shift the five minute 'ruler' two minutes one way, and you get an entirely different picture, though still a five minute candle chart. Shift it three minutes the other way, and you get a different picture again . . .

Daily (cash session) candles are different in that they represent a distinct unit of time, both preceded and followed by a period in which no trading occurs.

I hope that's helpful.

[ensoniq]

In your thread you make the following statement:

The 50-period simple moving average (SMA) and the 200-period simple moving average are important technical indicators that act as powerful support and resistance levels.

I feel I should point out that this cannot be the case. A moving average can only be calculated after the price action has occured. It cannot provide support or resistance during a trading period because it cannot be calculated until after that trading period is over.

If I ask you 'at what level can we expect resistance at the 200SMA tomorrow?' you cannot offer a reply because you cannot know where tomorrow's 200SMA will be until after tomorrow's close. You cannot give me any information that will be useful to me in advance. This is (part of) why such indicators are said to be 'lagging'.

A further point to make is that, because a moving average is by its very nature an average of price action, price can be expected to spend as much time above the MA as below it - hence the probabilty of it providing support in any given instance is pretty much a coin toss (and likewise with resistance).