[candlesticks] Do Candlesticks Work?

[guruji 10]

Essentially you are saying that context affects the interpretation of a candlestick pattern. And I think I agree with that.

 

From the perspective of algorithmic/automated trading the challenge is quantify the context.

 

Thanks for the comments.

[SIUYA 11]

essentially you are saying that context affects the interpretation of a candlestick pattern. And i think i agree with that.

 

From the perspective of algorithmic/automated trading the challenge is quantify the context.

 

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the holy grail to back testing and auto trading

[wrbtrader 10]

Essentially you are saying that context affects the interpretation of a candlestick pattern. And I think I agree with that.

 

From the perspective of algorithmic/automated trading the challenge is quantify the context.

 

Thanks for the comments.

 

Exactly and that's a tough task for a retail home base trader. Also, it depends on what the context is to determine if it can be quantify because some context can't be quantify...rise of the discretionary trader. However, that's where market experience comes into play to compensate for what something else in the trading plan is not able to do with the interpretation of candlestick patterns or any other type of trade signal.

 

It's teamwork via everything working together to form a trading plan = market experience, market context, money management, position size management, proper capitalization, proper computer equipment, proper trading platform, entry signals, trade management after entry et cetera. Thus, you can quantify some aspects of a trading plan and depending upon the trading day...one aspect in the trading plan will be more important than other aspects in hindsight.

 

Simply, technical analysis and it's subgroups (e.g. Japanese Candlesticks) are just one chapter in the book of trading...each dependent upon the other to make the few profitable if the pieces of the puzzle fits. Yet, there's different trading plans out there which is why some traders don't have a chapter in their book (trading plan) involving Japanese Candlesticks. In contrast, I do have candlestick analysis as one chapter in my trading plan.

 

Mark

[windsurfer 10]

I looked at this forum because I was interested in the question of whether Candlesticks work.

 

What I have concluded from the (much appreciated) discussion so far is that candlesticks by themselves are not of value, but they may be "in context". I take this to mean, in combination with other facts. I'd be interested in this being quantified. For example, "a doji in a short term downtrend and long term uptrend will result in a reversal x% of the time, but if both trends are in the same direction, it will result in a continuation y% of the time." (Of course, this statement needs quantification as well- including a definition of trends and time periods). But I'm just giving it as an example of a possible context.

 

This is the direction in which I personally would like the discussion to proceed. Guruji, how will you be proceeding? (I'm also interested in what your study of the doji following 5 down days showed, although I expect this event is so rare that it is not tradeable)

[brownsfan019 17]

I looked at this forum because I was interested in the question of whether Candlesticks work.

 

What I have concluded from the (much appreciated) discussion so far is that candlesticks by themselves are not of value, but they may be "in context". I take this to mean, in combination with other facts. I'd be interested in this being quantified. For example, "a doji in a short term downtrend and long term uptrend will result in a reversal x% of the time, but if both trends are in the same direction, it will result in a continuation y% of the time." (Of course, this statement needs quantification as well- including a definition of trends and time periods). But I'm just giving it as an example of a possible context.

 

This is the direction in which I personally would like the discussion to proceed. Guruji, how will you be proceeding? (I'm also interested in what your study of the doji following 5 down days showed, although I expect this event is so rare that it is not tradeable)

 

Sounds good WS - let us know what you find out from your analysis.