Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

TraderBG

Why Do Candlestick Patterns Work?

Recommended Posts

From the moment I started learning to trade I've heard of candlestick patterns. The concepts of price patterns I have no trouble grasping but I'm curious why such a pattern as an engulfment candle works or even a single doji on a time-based chart? Like for instance if price opens a tick or so above the close of the previous candle, and just so happens to be engulfing that candle at the time the candle closes why would that signal anything? Because a second or two later it may not be engulfing. What does the fact that it opened a few ticks higher imply and what is it about set time intervals that is significant? I can understand a few consecutive dojis meaning that supply and demand are coming in balance but I'm having trouble grasping why a lone candlestick might work. Is it because so many people look for it to happen thus self-fulfilling the prophesy or something else entirely?

Share this post


Link to post
Share on other sites

Coincidence.

 

A candlestick pattern alone will not work. They only work in conjunction with more important aspects like support and resistance and trends.

 

Remember there is only a handful of big money traders looking at candlesticks, on exactly the same timeframe, and looking for textbook cliche setups. Whereas a very high percentage will be looking at key S/R levels as they don't adhere to timeframes, or chart layout style.

Share this post


Link to post
Share on other sites

Candlesticks are just another way of illustrating price action i.e buying and selling pressure and hence as Wasp stated are relevant at important support/resistance levels.

 

One can use equivolume bars, point and figure charts, market profile etc to do the same job.

 

Patterns are a result of the way the traders interact in the market.

Greed and fear manifest in some repeatable patterns which can be exploited, ofcourse after having first understood the buying and selling pressure concepts thoroughly.

Share this post


Link to post
Share on other sites

The 2 above replies are really good.

 

I have one reco BG before you dive into anything new, esp candlestick patterns - you cannot JUST use candlestick patterns to trade from. There must be something else helping them, such as support/resistance, moving averages, oscillators, etc. etc. You cannot buy a hammer just b/c you see a hammer on your chart.

 

Also, the lower the timeframe, the less reliable a candlestick pattern can be in and of itself. Again, some other confirmation is needed whatever that may be.

 

To see an example, see this thread that was initially started by BearBull in another thread that I migrated over here to the CC.

Share this post


Link to post
Share on other sites

Thanks for the replies. I'm going to start following the CC closely because it's something I'm highly interested in. I had a look at the thread in the link you posted BrownsFan--very interesting indeed. I like what I see here so keep up the great work guys.

Share this post


Link to post
Share on other sites

IMO the 20 EMA thread is the best thread on this entire forum.

 

Why?

 

B/c it provides a very manageable entry system that just about anyone can follow. There's some good threads on TL, but I'm not sure anything else is as clear and cut as the 20 EMA thread for entries.

Share this post


Link to post
Share on other sites

I'm not one to blow my own trumpet, mainly because it hurts my back and other than the washing, that's what the wife is for but anyhow, I'd also say my live FX trades thread is also rather good for entries, exits, trade management and getting to the bottom of what is really happening in the GJ traders minds and milking it.

Share this post


Link to post
Share on other sites
...I'm having trouble grasping why a lone candlestick might work. Is it because so many people look for it to happen thus self-fulfilling the prophesy or something else entirely?

 

Single candlestick interval analysis is not reliable if you implied analyzing and making trade decisions based upon one candlestick line.

 

As for candlestick patterns (more than one interval), it's best to use them in combo with another trade approach as already echoed in this thread.

 

Simply, don't use them all by themselves.

 

Mark

Share this post


Link to post
Share on other sites
As for candlestick patterns (more than one interval), it's best to use them in combo with another trade approach as already echoed in this thread.

 

Simply, don't use them all by themselves.

 

Yeah, try it together with astrology. Killer combo. :o

Share this post


Link to post
Share on other sites
IMO the 20 EMA thread is the best thread on this entire forum.

 

Why?

 

B/c it provides a very manageable entry system that just about anyone can follow. There's some good threads on TL, but I'm not sure anything else is as clear and cut as the 20 EMA thread for entries.

 

Hello

 

Can someone send me a link to the 20 EMA thread referenced above?

 

Many thanks

 

algtrader

Share this post


Link to post
Share on other sites
From the moment I started learning to trade I've heard of candlestick patterns. The concepts of price patterns I have no trouble grasping but I'm curious why such a pattern as an engulfment candle works or even a single doji on a time-based chart? Like for instance if price opens a tick or so above the close of the previous candle, and just so happens to be engulfing that candle at the time the candle closes why would that signal anything? Because a second or two later it may not be engulfing. What does the fact that it opened a few ticks higher imply and what is it about set time intervals that is significant? I can understand a few consecutive dojis meaning that supply and demand are coming in balance but I'm having trouble grasping why a lone candlestick might work. Is it because so many people look for it to happen thus self-fulfilling the prophesy or something else entirely?

 

When Steve Nison wrote his Candlestick book, I believe he was using them for daily candles. I am not sure how reliable they are for shorter timeframes, but for the daily bars, the open and close actually mean something.

Share this post


Link to post
Share on other sites
Lately I seem not to have any success with traditional candlestick patterns.

Al Brooks deals with trades similiar to trades discussed and tested in the 20 ema thread mentioned above. His terminology may be different but basic concepts are about the same. In addition, he goes into many more details and many more trading opportunities. Candlesticks patterns and setups alone are not the key. One must look at market structure and pressures that are present in the context prior to the candlestick pattern or setup evolving.

Share this post


Link to post
Share on other sites

If you know market pressures and context you do not need any indicators. The point in using indicators is that they are supposed to include all that and assist in generating automated systems.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • $AIZ Assurant stock nice breakout, from Stocks To Watch , see https://stockconsultant.com/?AIZ  
    • Date: 28th March 2024. The US Dollar Strengthens As Economists Believe The ECB Will Struggle To “Hold”. Early this morning, the Fed Governor advised “there is no rush to cut rates” and “the data within the upcoming months” will be vital. The US Dollar Index rises to a 1-month high. The value of the USD will largely be based on today’s data on economic growth, consumer sentiment and pending home sales. Dollar and index traders are closely monitoring tomorrow’s Core PCE Price Index which analysts expect will read 0.3%. A higher inflation reading can potentially pressure stocks and support the Dollar. Strong declines in NVIDIA and Netflix stocks pressured the NASDAQ on Wednesday. Though, buyers entered late in the session to boost the overall price. EURUSD The latest comments from members of the Federal Reserve are supporting the US Dollar. The forward guidance between members of the Federal Reserve is mainly not aligned. The Chairman advises the Fed does not need much more proof for the regulator to feel comfortable reducing rates. Whereas the Fed Governor, Mr Waller, advises there is no rush, and he wants to see a few months of data before determining the next move. Therefore, the upcoming inflation and employment data will remain vital and could even push back rate hikes further. According to economists, the Federal Reserve will cut the interest rate on 3 occasions this year, but the timing of the first cut is less certain and may change depending on upcoming data. A positive factor for traders is that EURUSD exchange is not witnessing conflicting currencies. The US Dollar is trading 0.12% higher while the Euro is declining against most currencies. The Euro is trading 0.06% lower against the Pound and the Canadian Dollar and 0.16% lower against the Japanese Yen. Yesterday, the head of the Bank of Italy, Mr Cipollone, said that the authorities were confident that inflation would return to the target of 2.0% by mid–2025. He also supports the lower of interest rate and will use this as a basis for adjusting monetary policy. The Euro is generally under pressure as investors believe the European Central Bank will struggle to avoid cuts if the Fed decide to delay their adjustments. The US Dollar will be influenced by four major economic data releases. The US Final GDP, Weekly Unemployment Claims, Pending Home Sales and Consumer Sentiment Index. If these read higher than expectations with the weekly unemployment claims dropping, the US Dollar is likely to witness further support. However, investors should note the main release will be tomorrow’s Core PCE Price Index. Traders are expecting no major news for Europe and volatility levels may fall tomorrow as European markets are closed for Easter. Technical analysis currently points towards a continued downward trend. The price is trading below the neutral on the RSI and below the 75-Bar EMA. However, investors should note this will also be dependent on upcoming US data. USA100 The price of the USA100 was under pressure throughout the whole US session but was saved by an increased volume of buyers late in the session. However, a positive point is the components held onto their value. Even though the index fell in value, only 28% of the components declined. Investors will now turn their attention towards tomorrow’s PCE Price Index and the upcoming earnings season which will start in mid-April. The price is now trading slightly above the Moving Averages but slightly below the 50.00 on the RSI. Therefore, technical analysis remains at the “neutral” level and continues to indicate a larger price range. If today’s economic data is positive the stock market can witness confidence and support as this continues to indicate a soft landing. Though, if the data is too strong, it could also trigger a hawkish Fed which is known to be negative for the USA100. Always trade with strict risk management. Your capital is the single most important aspect of your trading business. Please note that times displayed based on local time zone and are from time of writing this report. Click HERE to access the full HFM Economic calendar. Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE! Click HERE to READ more Market news. Michalis Efthymiou Market Analyst HFMarkets Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • $IBKR Interactive Brokers stock narrow range breakout watch above 111.16 , see https://stockconsultant.com/?IBKR
    • $ISRG Intuitive Surgical stock narrow range breakout watch above 403.07 , see https://stockconsultant.com/?ISRG
    • $JETS ETF top of range breakout watch above 20.61 , see https://stockconsultant.com/?JETS
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.