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A question about the book "Candlestick charting explained"

  • #1
  • First Post: Aug 24, 2010 5:53am Aug 24, 2010 5:53am
Hi all,

In the "Pattern detail information boxes" of this book, the statistics of the edge of each candlestick reversal pattern are shown. Nevertheless, the edges seem to me so weak that it is useless to make uses of the patterns.

Anyone who have read the book can tell me that why they published such a book so unconvincing?

Sample pages on Google

Thanks in advance.

kk007
Attached Image
  • #2
  • Aug 27, 2010 3:16pm Aug 27, 2010 3:16pm


I'm paraphrasing (heavily) from a book I just finished, "...notice I just described price action without once using terms like spinning top, double/tripe bottoms, dark cloud.... triple half gainer back flip.... "

The whole candlestick pattern BS is way over-done, IMHO. People made money without them, and still are today.
  • #3
  • Aug 27, 2010 8:33pm Aug 27, 2010 8:33pm
  •  Ideasmiths
  • | Joined Mar 2009 | Status: 一将功成万骨骷 Forex war! Win pips or die! | 30 Posts
Quoting kk007
Hi all,

Anyone who have read the book can tell me that why they published such a book so unconvincing?

kk007
Short summary, the statistic is based on past data, and anyone who do backtest have 20-20 hindsight and everything looks fantastic. But when the blackbox is used in the real market (like most robots), they fall apart.

But when you put these 'information' on a book, it becomes black and white and it sells book because people believe what they see. It gives the book an 'edge' over other candlestick books. For example, some new trader searching would come across this and another CS book. "Hey....this one got table on the probability of each candlestick patterns!"

There are even whole book on these, like Encyclopedia of Candlestick Charts - which is ridiculous.

If these work, then some bank would just programmed them into a trading platform and become richer B-)
  • #4
  • Aug 27, 2010 8:40pm Aug 27, 2010 8:40pm
Quoting Slack


I'm paraphrasing (heavily) from a book I just finished, "...notice I just described price action without once using terms like spinning top, double/tripe bottoms, dark cloud.... triple half gainer back flip.... "

The whole candlestick pattern BS is way over-done, IMHO. People made money without them, and still are today.
Thanks,

Sound you believe that those famous candlestick patterns are completely useless, but you do check price action.

Nevertheless, the most confusing thing is that they publish a book on candlestick patterns while their reported statistics seem suggesting there is no edge in using them.
  • #5
  • Edited 9:02pm Aug 27, 2010 8:45pm | Edited 9:02pm
Not arguing pro or con at the moment; but a few comments:
1) The fact that they took the time to add statistics is a lot more than many other TA books do. I like to see stats.
2) What is so horrible about the stats? a 59% edge over a million samples is pretty good hit rate if you ask me. Rarely will you find hit rates at 90%+ for such a sample.

How did you draw the conclusion there is no edge from the table you posted? I assume you are familiar with hit rate or expectation....
  • #6
  • Aug 27, 2010 9:01pm Aug 27, 2010 9:01pm
Quoting jamjamjam
Not arguing pro or con at the moment; but a few comments:
1) The fact that they took the time to add statistics is a lot more than many other TA books do. I like to see stats.
2) What is so horrible about the stats? a 59% edge over a million samples is pretty good hit rate if you ask me. Rarely will you find hit rates at 90%+ for such a sample.
If you just talk about the above image attachment 59% is the losing rate, not winning rate.
  • #7
  • Edited 9:46pm Aug 27, 2010 9:19pm | Edited 9:46pm
Quoting kk007
If you just talk about the above image attachment 59% is the losing rate, not winning rate.

So if I tell you that I found a coin that comes up heads only 40% of the time in 14 million tosses, it implies a losing system?

I honestly hope you understand the flaw in your line of thinking; it's a pretty important concept.
  • #8
  • Aug 27, 2010 10:40pm Aug 27, 2010 10:40pm
Quoting jamjamjam
So if I tell you that I found a coin that comes up heads only 40% of the time in 14 million tosses, it implies a losing system?

I honestly hope you understand the flaw in your line of thinking; it's a pretty important concept.
I think you don't know what I am talking about.
  • #9
  • Edited 11:06pm Aug 27, 2010 10:48pm | Edited 11:06pm
Quoting kk007
I think you don't know what I am talking about.
Quoting kk007
Hi all,

In the "Pattern detail information boxes" of this book, the statistics of the edge of each candlestick reversal pattern are shown. Nevertheless, the edges seem to me so weak that it is useless to make uses of the patterns.

Anyone who have read the book can tell me that why they published such a book so unconvincing?

kk007
It's possible I am misinterpreting you, but then again, maybe you can elaborate. To paraphrase you stated that based upon the tables you pasted, "edges are 'so' weak" therefore the patterns were useless; beyond that you implied publishing such information was a waste of time.

Could you explicitly define your interpretation of a weak edge mathematically based on the tabular results you displayed. What is your interpretation of mathematical edge here and why do you say it is weak?
  • #10
  • Aug 27, 2010 11:25pm Aug 27, 2010 11:25pm
Quoting Ideasmiths
Short summary, the statistic is based on past data, and anyone who do backtest have 20-20 hindsight and everything looks fantastic.
Thanks

No. The statistics does not look fantastic at all, there are a lot of tables in the book like the one attached above (if you look through the sample pages in Google). You can see some of the the "net profit/net loss" are positive some are negative, and by inspection on the values, it is hard to see whether net profit or net loss is more.

If someone have not read and understood table format and looked through the tables in the book, it is hard for them to comment meaningfully.
  • #11
  • Aug 28, 2010 4:19am Aug 28, 2010 4:19am
Quoting kk007
Thanks,

Sound you believe that those famous candlestick patterns are completely useless, but you do check price action.

Nevertheless, the most confusing thing is that they publish a book on candlestick patterns while their reported statistics seem suggesting there is no edge in using them.
Yep. The statics are honest, which is good.

I had an epiphany recently regarding price action. Candlestick patterns are nothing more than a scratched / foggy lens of a camera obscuring the scene. There's a difference between clarity and confluence of coincidences.
  • #12
  • Aug 28, 2010 4:42am Aug 28, 2010 4:42am
Quoting Slack
I had an epiphany recently regarding price action. Candlestick patterns are nothing more than a scratched / foggy lens of a camera obscuring the scene. There's a difference between clarity and confluence of coincidences.
Great!
I hope I have understood what you have said here, if you have any technical details written, please share if you don't mind.
cheers,
  • #13
  • Aug 28, 2010 5:20am Aug 28, 2010 5:20am
Hi,

Thanks for this review..i had been very confused about the 4hrs chart candles and still had one query when it is valid while the opening or at the closing..please resolve..this

Thanks:
Albert.
  • #14
  • Sep 30, 2010 11:10am Sep 30, 2010 11:10am
That test on candlestick are done by mathematician or should I say idiot. Candlestick pattern cannot be taken just as per seeing ones.
  • #15
  • Oct 2, 2010 11:17pm Oct 2, 2010 11:17pm
Great post guys on candle sticks....

Well remember too that Steve Nison himself does not advise trading candle stick patterns on there own must use western technicals as well.



-Mike
  • #16
  • Oct 3, 2010 1:45am Oct 3, 2010 1:45am
Quoting thehouse
Great post guys on candle sticks....

Well remember too that Steve Nison himself does not advise trading candle stick patterns on there own must use western technicals as well.



-Mike
100% correct.
the candlesticks pattern are useful when they appear in a good location, for example at a round number, support/resistance, chart patterns etc.
taking the trade only based on the candlestick patterns will not work out.
meine augen sind die sterne
  • #17
  • Oct 3, 2010 4:25am Oct 3, 2010 4:25am
You can't backtest price action. The statics most people come up with is BS.

Don't get discouraged and fooled by focusing on the a number of things that do not matter.

Off the bat, Reversal bars, by themselves, are useless. If you traded every potential reversal bar, you'd lose more than you'd win. Its funny how not one candlestick book tells readers the cold, hard truth about reversal patterns.

To effective trade reversal bars, you need a level of hesitation to trade reversal bars.

Reversal bars need a hesitation level, such as Support/Resistance to 'validate' the reason for the reversal. Typical Fibonacci, whole numbers levels, Pivot levels, trendlines, channels, Gann, etc are great levels for price to reversal off of.

Remember, reversal bars need a ceiling or floor to reverse from. Ceiling and Floor (in other words Support and Resistance) levels acts are a launching point for reversal bars.

Again, I don't know why any candlestick professional book writer includes this idea with candlestick reversal signals. This is info thats been around for decades, it not a secret yet many traders don't talk about s/r and reversal bars together. This strategy is my bread and butter trading strategy.
  • #18
  • Oct 3, 2010 4:43am Oct 3, 2010 4:43am
Heres and example of what I'm talking about:

Attached Image (click to enlarge)
Click to Enlarge Name: eurnzd reversal example.PNG Size: 20 KB


The chart shows, a favorite pair of mine EURNZD 4H timeframe. My preferred support and resistance levels are whole numbers:

#1 Bullish Engulfed Reversal Bar reverses off whole number level 1.7400
#2 Bearish Engulf Reversal Bar reverses off whole number level 1.8050
#3 Bullish Two Doji Reversal Bars reverses off whole number level 1.7850
#4 Bearish Doji Reversal Bar reverses off whole number level 1.8550

The Engulfed bars are a two bar reversal setup. You'll usually see 'em at major whole number levels. They indicate one side of the market quickly taking control of the market at key levels.

Doji are not reversal signals. A typical doji near major levels tells price action traders that price is in hesitation. Bulls/bears are neutral. Bull/Bears are battling it out near a key level. A series of two or more doji's mean there is a major bear/bull fight happening at the cusp of a key level.
  • #19
  • Edited 10:32am Oct 3, 2010 8:33am | Edited 10:32am
Hi Jhig,

Thanks for your reply. I have tried to understand your method and eyeball-checked your chart (not exhaustively checked) and just curious whether it is a few possible failures?

Quoting Jhig
Heres and example of what I'm talking about:

Attachment

The chart shows, a favorite pair of mine EURNZD 4H timeframe. My preferred support and resistance levels are whole numbers:

#1 Bullish Engulfed Reversal Bar reverses off whole number level 1.7400
#2 Bearish Engulf Reversal Bar reverses off whole number level 1.8050
#3 Bullish Two Doji Reversal Bars reverses off whole number level 1.7850
#4 Bearish Doji Reversal Bar reverses off whole number level 1.8550

The Engulfed bars...
Attached Image (click to enlarge)
Click to Enlarge Name: attachment2.PNG Size: 20 KB
  • #20
  • Oct 23, 2010 1:40am Oct 23, 2010 1:40am
Candlesticks alone is surely doomed to fail in the long run. What can turn this art into a successful one is when used as confluence. SR, Pivot Lines, Divergence, etc.
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