# Candlesticks: entries, exits, how to trade?



## tom82 (16 September 2014)

Can anyone recommend any books on candlesticks that covers possible entries and exits and/ or how to trade the candle pattern?


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## minwa (16 September 2014)

Steve Nison books. Otherwise plenty of websites covering them. There isn't really any exit strategy for candlesticks unless you use an entry pattern in the opposing direction as an exit. 

I studied candlesticks for a long time when I first started out, thinking it was some sort of magic that allows me to see what others cannot. I don't use candlesticks anymore today. Open up a chart you will see candlestick patterns everywhere - I don't see an edge in that.


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## burglar (16 September 2014)

nulla nulla said:


> I found the following books helpful:
> 
> Ron Bennetts:   The Australian Stock Market
> Alan Hull:          Active Investing
> ...




An interesting thread!


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## pixel (16 September 2014)

tom82 said:


> Can anyone recommend any books on candlesticks that covers possible entries and exits and/ or how to trade the candle pattern?




I use a few patterns *in combination with volume, momentum, and trends*. It's not an exact science, more like an additional pattern reinforcing the likelihood of turns near support or resistance levels. In that context, I do take note of hammers, Harami crosses, or morning and evening stars. 

The only book I own on the issue is Louise Bedford's "Secret of Candlestick Charting". Anybody want to borrow it? IM me.
Once I had discovered Leavittbrothers' website, I bookmarked that and a few others for a quick refresher once in a while. You know the saying "No need to learn by rote what you know where to find."
Here are a few of my bookmarked pages to get you started:

http://www.leavittbrothers.com/education/technical_analysis/ (not strictly candlesticks)
http://www.leavittbrothers.com/education/candlestick_patterns/
http://thepatternsite.com/CandlePerformers.html

http://www.hotcandlestick.com/candles.htm
the last link is currently timing out; maybe it's undergoing maintenance, or could've been taken off.


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## burglar (17 September 2014)

pixel said:


> ... http://www.hotcandlestick.com/candles.htm
> the last link is currently timing out; maybe it's undergoing maintenance, or could've been taken off.




It's working fine for me!


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## AverageJoe (20 September 2014)

minwa said:


> Steve Nison books. Otherwise plenty of websites covering them. There isn't really any exit strategy for candlesticks unless you use an entry pattern in the opposing direction as an exit.
> 
> I studied candlesticks for a long time when I first started out, thinking it was some sort of magic that allows me to see what others cannot. I don't use candlesticks anymore today. Open up a chart you will see candlestick patterns everywhere - I don't see an edge in that.





I think a lot of people thinks that a reversal or continuation candle pattern is all there is to this method. It is actually location ie. the key levels, where you should be looking at a pattern whether single or multiple candles. And that goes for fibonacci levels. Randomly selecting a fib level and entry is just that.


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## tech/a (20 September 2014)

AverageJoe said:


> I think a lot of people thinks that a reversal or continuation candle pattern is all there is to this method. It is actually location ie. the key levels, where you should be looking at a pattern whether single or multiple candles. And that goes for fibonacci levels. Randomly selecting a fib level and entry is just that.




Correct

*Context*


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## sails (20 September 2014)

tech/a said:


> Correct
> 
> *Context*




+1 Absolutely!  

One thing I have done with any new indicator is to *initially* research and test it in isolation.  This has helped to gain an understanding of that particular indicator and decide if it is even worth having in my trading toolbox. 

I do use some basic candlestick patterns, however, would never use it or any other indicator in isolation for live trading.  Imo, if the ducks don't line up, then don't pull the trigger!


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## pixel (20 September 2014)

sails said:


> +1 Absolutely!
> 
> One thing I have done with any new indicator is to *initially* research and test it in isolation.  This has helped to gain an understanding of that particular indicator and decide if it is even worth having in my trading toolbox.
> 
> I do use some basic candlestick patterns, however, would never use it or any other indicator in isolation for live trading.  Imo, if the ducks don't line up, then don't pull the trigger!




+100%

Looking at each candle in isolation is akin to *missing the wood for the trees.*
Volume, momentum, trend, and the location of a pattern relative to others - all of those things matter.

tech/a summarised it in the one word: *Context*


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## AverageJoe (20 September 2014)

tech/a said:


> Correct
> 
> *Context*





I have been doing a bit of reading in this section and your comments about risk reward ratios and the use of raw charts  seems to work for me. Makes it easier to read price action without all the lines and noises of indicators. 

Anyone have better success since removing ALL indicators  including MA?


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## tech/a (20 September 2014)

AverageJoe said:


> I have been doing a bit of reading in this section and your comments about risk reward ratios and the use of raw charts  seems to work for me. Makes it easier to read price action without all the lines and noises of indicators.
> 
> Anyone have better success since removing ALL indicators  including MA?




Indicators are a derivative of Price(Open Close High Low)/Range/Volume or Open interest.
They "Indicate" progressive changes over the time period selected. The idea is that this indication is likely to continue.

They have their place---for me that place is in a system or a systematic approach to trading.

*Where*

A set of parameters and variables are introduced to a data set (Say the All Ordinaries) over a period of time with the view that they consistently return a buy and close set of trades which produce a profit (positive expectancy).
This can be enhanced by Good risk management---Margin and or Compounding of profits.

So this tends to work (once you find one) until the data set changes characteristics--significantly--- to those with which you tested. 

They also tend to work better with longer time frames.

*Where*

Patterns
Individual or grouped Bars--Candles coupled with the landscape of a chart---and read in *CONTEXT *to that chart are best used ---in my view-- for discretionary trading and in shorter time frames.

Id also add that Analysis like Elliott/P&F/Steidlmayer can also be very helpful when similar patterns are seen across a wide range of charts in particular if in sync with their index. 

Analysis---all analysis including Fundamental has a place but must be taken in CONTEXT of the *overall landscape* of not only the chart being viewed but the broader market in many cases.


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## AverageJoe (20 September 2014)

tech/a said:


> Indicators are a derivative of Price(Open Close High Low)/Range/Volume or Open interest.
> They "Indicate" progressive changes over the time period selected. The idea is that this indication is likely to continue.
> 
> They have their place---for me that place is in a system or a systematic approach to trading.
> ...




I have been reading the DAX scalping thread and volume is probably something that can be looked at including the DOM but in forex specifically, you only have price and time, interested in the different ways people scalp or trade longer term ie. 4h/daily. It would appear price would be very pure and no gaps unlike indices/stocks. Do you trade Forex? I am only using S/R but have been interested in the supply/demand concept which is different to S/R lines.


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## Farmer George (22 November 2014)

Just stumbled across this thread.

Well, this a a very broad topic. Using 'opposite patterns' in candles analysis can be tricky because it would be hard to have risk management under control (what if the 'opposite' pattern doesn't occur and the market goes against us heavily?. In other words, it's good to know the maximum risk on a given trade we take. Employ trailing stops or take profits.

As for the magic or lack of it, I would say that the advantage of candle patterns is that we can select those for which repetitive frequency is high and then measure their efficiency (for example this package provides such statistics https://www.facebook.com/CandleScanner). I wouldn't bother with ones which are rare. But the candle patterns, as such, shouldn't be (and are not) a complete trading strategy. But, we can have a very decent set-up which can then be enriched by detailed entry signals (how to open a position once the pattern occurs, at which price, and, should I always open a position once the pattern occurred). On top of this, we should add an exit strategy i.e profits/losses + the position sizing. But, before adding position sizing we need to know that we have an edge, positive expectancy. Then, by good position sizing, we can become profitable and manage the risk.

Japanese patterns are simple, and if we can find positive expectancy using simple solutions, then we have an improved chance to become profitable. Complex stuff typically works fine in backtesting after heavy optimization only. People often make things complex, because they think it's better.The 'magic' of candle patterns is that they are simple and repeatable and therefore we can check their efficiency.


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## Farmer George (22 November 2014)

Apologies for the double post.


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## shulink (24 November 2014)

I like Profitable Candlestick Trading: Pinpointing Market Opportunities to Maximize Profits the best. It is an easy to follow book for beginners on Candlestick Patterns.


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## Modest (25 November 2014)

I found these videos extremely helpful when I first started out. Lance talks about pretty much all the mainstream types of candle patterns and the psychology behind the patterns, very useful foundations.  

https://www.youtube.com/watch?v=k9AlAvYa6MA


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## Farmer George (25 November 2014)

Modest said:


> I found these videos extremely helpful when I first started out. Lance talks about pretty much all the mainstream types of candle patterns and the psychology behind the patterns, very useful foundations.
> 
> https://www.youtube.com/watch?v=k9AlAvYa6MA




Lots of material around on the internet on Candlesticks. Established books are by Nison, the 'father' of candlesticks in the West, Morris and Bulkowski, to name three. This one is also worth a look - Steve Palmquist 'Money-Making Candlestick Patterns: Backtested For Proven Results. A few packages around which look to automatically identify candlestick patterns. Hope this helps.


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