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Candles are arbitrary

  • #1
  • First Post: Jan 24, 2010 8:16am Jan 24, 2010 8:16am
From Page 321 -322 Millionaire Traders:

Q : Do you wait for a red candlestick to develop before you
initiate a short?
A: Yes. I not only do that, but I don’t try to pick exact tops and
I don’t try to pick exact bottoms. I don’t really care if the thing is
trading at 770 at the top and I get short only at 765 because I know
it’s going to 762. I’ve gotten burned way too many times trying to
pick tops and bottoms. I’d rather know where it’s going. All I care
about is where it’s going.
Q: What gives you confidence in knowing where it’s going?
A: The candles, the volume.
Q: In candles what you are looking for?
A : I’m looking for a medium-size candle with a small wick on
both sides. Those are golden.
Q: Okay.
A: I’m looking for the big fight, like just a small wick on top and
bottom. Then I will get inside that candle, inside that fight and I
will put my orders inside that candle and usually put my stop three
to five ticks above the body of the candle.
Q: So not even above the top of the candle?
A: No. No the true fight, where the fighting is going on that’s the
body. Not the wicks, the wicks are worthless.
321
Millionaire Traders
Q: Really? You don’t even use the candle high/low as your reference
points? It’s only the body of the candle that you’re interested
in?
A: The body, I use the bodies. I love the bodies.
Q: In that kind of a scenario, generally how frequently do you
get stopped out versus you being right?
A: Rarely. I think it’s about an 88 percent of the time, I’m right.

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

Aren't the wicks where the real battle occurred? Price went to an extreme and got moved back. The wicks are like the red zone in football. Defense gets tough there. What are your thoughts?
  • #2
  • Jan 24, 2010 8:28am Jan 24, 2010 8:28am
Bodies and wicks are equally useless.

Candle open time and close time are just arbitrary points in time. Imagine 60min candles - why is the price at 2:00 more important than that at 2:15? (Obviously sometimes it is because of news but you get the general point)

That is why individual candles are next to useless. The candle high and low prices are significant because they show the range over that time period but the open and closes are just noise.
  • #3
  • Jan 24, 2010 8:46am Jan 24, 2010 8:46am
Quoting jzw
Bodies and wicks are equally useless.

Candle open time and close time are just arbitrary points in time. Imagine 60min candles - why is the price at 2:00 more important than that at 2:15? (Obviously sometimes it is because of news but you get the general point)

That is why individual candles are next to useless. The candle high and low prices are significant because they show the range over that time period but the open and closes are just noise.
Useless is a pretty strong word to be applied to candles, wicks and bodies. Thank you for your opinion.
  • #4
  • Jan 24, 2010 9:48am Jan 24, 2010 9:48am
I totaly agree that candles are pure crap, just like all timeframes!
In past I made a extensive tests based on pure math probabiltys
and I assure you that there is no predictive value in any of bar type,
or combo of bars....
  • #5
  • Jan 24, 2010 9:57am Jan 24, 2010 9:57am
Quoting Parazite
I totaly agree that candles are pure crap, just like all timeframes!
In past I made a extensive tests based on pure math probabiltys
and I assure you that there is no predictive value in any of bar type,
or combo of bars....

Thank you for your opinion.

Can you share your work on probability?
  • #6
  • Jan 24, 2010 10:03am Jan 24, 2010 10:03am
If you want to test them, the best thing is to try it yourself.
Once you prove to yourself that the math is saying that bars are crap
with no predictive value(like all of the indicators), you will become a
lot better trader than you was before this relevation!

Market is all about traders puting trades.....learn something about market microstructure
and a role of trades and their SLs....where is a most probable range for cluster of stops....
look into round numbers and the psichology behind it......

Get a copy of Beat the forex dealer by Augustin Silvani....it is a great start for anyone willing to
look "behind" a price charts!

Regards
  • #7
  • Jan 24, 2010 10:47am Jan 24, 2010 10:47am
Parazite, you're just talking about a different way of trading which you got from a book and have learned to make work for you. Candle size in relation to previous candles and trend is important because it shows sentiment, which is the point of how the interviewee trades. Perhaps you can introduce his way of trading to yours, to improve your success rate.

Rob
  • #8
  • Jan 24, 2010 11:15am Jan 24, 2010 11:15am
Quoting kennyjohnson
Aren't the wicks where the real battle occurred? Price went to an extreme and got moved back. The wicks are like the red zone in football. Defense gets tough there. What are your thoughts?
I think the body and the wick are both important but the reason that they are important is based on where the candlestick formed rather than the fact that the candlestick has formed.

The market is based on supply & demand (support & resistance), so when a particular candlestick pattern forms that indicates something like the rejection of a support or resistance level then that gives you an indication of what is happening (between buyers and sellers) at that time in the market.

It doesn't mean that the candlestick can predict what is going to happen (in my opinion) but it does give you some indication of what may happen. If you can recognize these areas and patterns successfully then you can use that as an edge in your trading.

Regards,

Dan
  • #9
  • Jan 24, 2010 11:30am Jan 24, 2010 11:30am
In my opinion most patterns only has significance in certain areas of the chart anyway. I have seen pin bars all over the charts but when they form at key levels of support and resistance they could give a good indication of what may happen very soon, nothing is perfect and the markets are no different imo, but candlestick certainly can be useful if they happen in the right areas. The wicks can tell you a lot as well, and so can the body of a candle, I think they all have a pupose but again I only pay attention to most (not all) formations around key levels.

--NM
  • #10
  • Jan 24, 2010 12:00pm Jan 24, 2010 12:00pm
Indicators are exactly what it says on the tin, they indicate to you in summary the state of the market and candlesticks are no different it's just another way of summarising what the price has been doing.

Just glancing at the chart will tell you what's happening, no need to analyse if it's a peak, if it looks like a peak it is a peak.
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  • #11
  • Jan 24, 2010 1:29pm Jan 24, 2010 1:29pm
remember that most books show daily candlestick charts on things like stocks or pit traded futures which have a definite open and close time. In these cases the open and close price and therefore the candle body and wick are important. But in 24 hour forex market that just isn't the case.

You can't take daily candlestick patterns from stock charts and apply that to intraday forex charts - it just does not work because the meaning behind the candles is different.

My own trading improved when I switched from 5 min candles to 1 min bars, but with the bars compressed so you could not easily see individual bars, just the general shape. 1 min bars show you the reality of what the market is doing and you are not viewing it through some filter like 5min candles or indicators.
  • #12
  • Jan 24, 2010 3:30pm Jan 24, 2010 3:30pm
I am always looking at the size and shape of the candlesticks or bars to gauge sentiment and strength. Ofcourse, I trade 1H, 4H and Daily. I could never imagine trading that way on 5m or 1m.
  • #13
  • Edited 4:32pm Jan 24, 2010 4:21pm | Edited 4:32pm
Quoting jzw
My own trading improved when I switched from 5 min candles to 1 min bars, but with the bars compressed so you could not easily see individual bars, just the general shape. 1 min bars show you the reality of what the market is doing and you are not viewing it through some filter like 5min candles or indicators.
You can view compressed candles in their original shape with
Attached File(s)
File Type: ex4 ToggleRegandHACandlesshiftv2.ex4   4 KB | 596 downloads
and probably other candle overlay indicators.

A careful use of candles and TL's does profit on the 1' demo; "just go for the direction", I recognized that, trying to get past it to be more certain (and get a consistent method).

It's true that candle and other predefined patterns fail as much as other indicators. Candles are relative to each other, and one can discern the next probable move from them with practice, especially if one knows a TL they follow.
The TL's are drawn from certain candles (body and/or wick, depending on the situation) that represent the price-time line's flow: Some candles are extra large or small, isolated from the rest of the price-time line or center a large area of candles.
  • #14
  • Jan 24, 2010 9:14pm Jan 24, 2010 9:14pm
Quoting jzw
Candle open time and close time are just arbitrary points in time......... The candle high and low prices are significant because they show the range over that time period but the open and closes are just noise.
FWIW, I agree with these points. However, I think strat uses daily candle closes to plot S/R (somebody please correct me if I'm wrong), something that I've never understood.

For me, clusters of candle lows/highs congregating around a certain level show points of potential S/R. And candle size gives me a clue as to the magnitude of buying/selling pressure.

The problem with the original quote is that the book interviewee (assuming that he is a genuinely successful trader) gives us a sneak peek into a small part of his method, but without really explaining the how or the why. Fair enough, it's his prerogative as to how much or how little he wishes to disclose. But IMO it's a mistake to take his statement as a universal truism; unless we understand how this fits into his total trading plan, and/or can somehow figure out how he buys/sells/exits within the candle body, we are really none the wiser.
  • #15
  • Jan 24, 2010 9:41pm Jan 24, 2010 9:41pm
Quoting kennyjohnson
From Page 321 -322 Millionaire Traders:

Aren't the wicks where the real battle occurred? Price went to an extreme and got moved back. I also believe that wicks are limit order mass fills (profit taking) or Mass Impulsive market order flow of trapped traders. The wicks are like the red zone in football. Defense gets tough there. What are your thoughts?
They both are important as a whole but IMO Wicks are trapped traders be in shorts or longs.

Attached Image (click to enlarge)
Click to Enlarge Name: Sunday Night Trading.JPG Size: 122 KB


I hope this helps.

This was about an hour ago i am kinda bored so i decided to bust out some late night trading.
  • #16
  • Jan 24, 2010 10:33pm Jan 24, 2010 10:33pm
Quoting kennyjohnson
From Page 321 -322 Millionaire Traders:

Q : Do you wait for a red candlestick to develop before you
initiate a short?
A: Yes. I not only do that, but I don’t try to pick exact tops and
I don’t try to pick exact bottoms. I don’t really care if the thing is
trading at 770 at the top and I get short only at 765 because I know
it’s going to 762. I’ve gotten burned way too many times trying to
pick tops and bottoms. I’d rather know where it’s going. All I care
about is where it’s going.
Q: What gives you confidence in knowing where it’s going?
A: The...
1) The term "medium-sized" is vague enough. Whatever's "medium-sized"
on EUR/JPY might be huge on AUD/CAD.


2) The rice trader, Honma, who developed the system of measuring price
action with candlesticks, said that it takes force to make something rise,
whereas things fall naturally by themselves. He applied this seemingly
physical law to the markets, and with great success.


3) This method, which I'm going to try today, is the very essence of simplicity;
it seems to rule out conditions like market hours, IBs, support and resistance
lines, even time frames.
HELL IS EMPTY, ALL THE DEVILS ARE HERE. -- Shakespeare
  • #17
  • Jan 26, 2010 7:26am Jan 26, 2010 7:26am
Quoting Fuzzyzc
They both are important as a whole but IMO Wicks are trapped traders be in shorts or longs.
On a longer timeframe chart M15 and above, I'd agree with that statement but on an M1 chart a 5 tick wick is just noise. How many people get trapped in a 5 tick wick and need to close? I doubt it is a significant number.
  • #18
  • Jan 26, 2010 12:21pm Jan 26, 2010 12:21pm
Quoting jzw
On a longer timeframe chart M15 and above, I'd agree with that statement but on an M1 chart a 5 tick wick is just noise. How many people get trapped in a 5 tick wick and need to close? I doubt it is a significant number.
Every trapped trader is a chance to make money. There are a lot of Inexperienced traders and smart traders who bought on the next tick. Those Downward Impulsive blow offs which i rode were where traders exited 5 or less ticks caused a significant movement in which i profited.

It only takes one tick to trap a trader. Once the Ball gets rolling with Impulsive exits from the small amount of trapped traders more will gang up on it. Not to mention New traders who Open Shorts.

Exhibit A. Last nights Land Slide of shorts.

The Euro has been ranging all day. BOO! No fun. (for some)

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Those Few trapped traders caused a land slide of shorts.

Every Tick is important.
  • #19
  • Last Post: Jan 26, 2010 12:58pm Jan 26, 2010 12:58pm
Nice post & explanations, Fuzzyzc.
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