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brownsfan019

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

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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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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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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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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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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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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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You could just set triggers based on the firm criteria that MUST be met in order to qualify as a potential trade. Then you manually decide whether to drop the hammer or not...so to speak.

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You could just set triggers based on the firm criteria that MUST be met in order to qualify as a potential trade. Then you manually decide whether to drop the hammer or not...so to speak.

 

If I am going to spend time and money to automate my trading, it will run at 100% automation. If it can't do that, I'm not interested. ;)

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Brownsfan,

 

Are CandleStick a primary method for you...or

a secondary part of you overall method/system or something else?

Simply, are you one of those Hardcore Candlestick traders or you just use them in conjuction with your overall methods.

 

 

-------------------

nevermind...

saw one of your post that answered my question.

Edited by sep34

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As I've stated previously, using a 'candle finder' software ESPECIALLY in intra-day trading is not only lazy but cannot possibly find the appropriate patterns.

 

In intra-day trading there is not room for rigid, computer defined 'find-a-shape' programs. You must remain flexible in your definition of patterns if using candles in your trading.

 

And before any of our new friends chastise me for saying 'my backtesting shows these do not work' 1) candles are not the be all end all - must be used in conjuction w/ some other analysis 2) if you use rigid, computer defined find-a-shape program, it cannot possibly do the intra-market analysis that a brain can.

 

Simply put - computer find-a-shape programs are for those that want a quick and easy way to trade via candlestick patterns. Inevitably, these WILL fail.

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i cant agree more with brownsfan. The candlestick patterns by themselves is a weak way of making money (probably losing more than winning) if they are not used in context with the situation. The use and identification of candlesticks has to be wholistic and used in conjunction other tools with appropriate money management.

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...The candlestick patterns by themselves is a weak way of making money (probably losing more than winning) if they are not used in context with the situation. The use and identification of candlesticks has to be wholistic and used in conjunction other tools with appropriate money management.

 

Candle patterns on their own are really not sufficient to make money in the markets. This is exacerbated by the fact that most "patterns" that can be found in books or on the internet are losing (low probability) patterns.

 

What one really has to understand is the price action PRIOR to the pattern.

 

Most traders fail here because they assume that the candle pattern defines the price action. The truth is the price action defines the candle pattern.

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You say tomato, I say tomatoe...

 

;)

 

Point is that candlestick patterns are incredibly useful tools for the visual learner, like myself, when used in a context that makes sense. Much of this has been explained throughout this entire area of the forum so I won't regurgitate.

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Axis-IT matched 'Three Outside Up Bullish' high priority Bullish Reversl candlestic pattrn on 22nd of July.

 

Pattern:

a) After an established downtrend, day-one continues the trend with a red candle

b) 2nd day is a long green day that engulfs the body of the first day, closing well above the previous days open.

c) The 3rd day is a green day with an even higher close than the second day.

 

axisit_2207.png

 

Src: CandleStick Patterns

 

When the stock is positive trend, y is it called Bullish Reversal?

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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. ;)

 

There are a few sources that I would recommend. Steve Nisson has written a few books and did seminars in the Past If you want to Code Candle sticks to use candle sticks in your Trading System as an adjunct there was an article in the Stocks & Commodities November 1999.

The Coding can be been done. A trader that I am no longer in touch with was able to get the Procedure to work. I can't find the working Code however. O

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"Japanese candlestick charting" has numerous patterns that are considered by many to be high probability. IMHO there is more to it than just the obvious. Candlesticks patterns are a way to describe market sympathy, ie, market pressures. Many many patterns that correctly indicate market sympathy can be found that are not part of any list of patterns I've ever seen before. I have been cataloging market sympathy changes as candle patterns at those times and integrated these into my automated trading system with excellent results. Beauty is more than skin deep and the candle pattern theory is beautiful. Look beneath the surface for understanding and a new world of trading will open up for you as it did for me.

 

Cheers

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IMo if one could easily predict the Doji, Hanging man and the morning star then we may not need the other methods of candlesticks. Offcourse every traders has his/her own choice of candlesticks to follow bt the above mentioned work for me and no need to go beyond and learn the kinda more complicated patterns..

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