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  • #1,081
  • Mar 15, 2015 2:27pm Mar 15, 2015 2:27pm
Quoting IBreakOut
{quote} Hi G, I agree with you completely. I read AGs post with interest as I am open to learn any new stuff. However many people try to overcomplicate things which will result in depressing results. We should have our indicators but limit them to a certain point. I prefer most the candlestick action to follow. It is interesting and true what you write about candlestick formations because of time difference. Keep in mind those difference mostly play roles on the daily charts only. Sometimes maybe on the 4H but definitely not on lower TFs as the...

Yes, of course. This is a great side discussion. The question was. What's your edge? Let's have a little fun with this one. I'll take the side that candlestick patterns are just a bunch of made up pseudo science.

So, let's critically examine using candle stick reading as an edge. If your broker shows a doji on a Daily, and mine shows a hammer, which is right and which is wrong? Quite honestly, I think we are both wrong for wasting time on such foolishness. It's the same as assuming the market is purposefully drawing patterns with price to tell us what the future will be. There is at least a couple big things wrong with that.

All single candles can tell us is whether price was going up or down or stayed the same during that one single candle, a very small sample size. The sample size seems far to small to be of any real statistical significance. Whether it is shaped like a doji or a hanging man should logically have absolutely nothing to do with future price.

In fact, I don't believe there is any method on earth that can accurately predict future prices. I think all the time and effort people put into trying to predict the future is wasted. Perhaps there are some price patterns formed with many candles like a range breakout that will work more than 1/2 the time. But predicting the future of price off a single candle formation? How could that be possible if two brokers are showing different candle formations for the daily candles? Who could be manipulating the entire market to draw such pretty patterns with price, and why? It defies logic.

There has been some statistical analysis on the subject of candle stick patterns. There may be some that work more often than not for some unknown reason, but they are so rare you could sit around for years waiting to see one. Thus they don't produce any useable edge. I suspect the fact that they are so rare means the sample size is small, and if it was large enough there would turn out to be very little if any advantage to them. Here's an analysis to consider, http://premium.working-money.com/wm/display.asp?art=329 I'm sure there are several out there that would be interesting to study.

As has been said before, an extraordinary claim requires extraordinary evidence. I can explain in very detailed logic why I think trend trading can produce a useable edge. Whether it does or does not work for me or anyone else, at least I can explain it logically. I challenge anyone to do that with candlesticks, Elliot waves, Fibs, tea leaves, or cloud patterns in the sky. With that said, if one of those methods is already really producing great profits for you, don't change a thing. But if you are struggling to make it work like the book or article you read said it will, then it might be that you are wasting your time on a bunch of pseudo-scientific junk. That's just my opinion. I'd be interested in hearing others.
  • #1,082
  • Mar 15, 2015 3:12pm Mar 15, 2015 3:12pm
Quoting Graviton
{quote} Yes, of course. This is a great side discussion. The question was. What's your edge? Let's have a little fun with this one. I'll take the side that candlestick patterns are just a bunch of made up pseudo science. So, let's critically examine using candle stick reading as an edge. If your broker shows a doji on a Daily, and mine shows a hammer, which is right and which is wrong? Quite honestly, I think we are both wrong for wasting time on such foolishness. It's the same as assuming the market is purposefully drawing patterns with price to...
Hi G,

Did not mean to put the fox among the chickens with my chart, but glad to see some commotion developing on this subject which is of great interest for me.

Speaking as a complete novice I understand Candles to be merely an aggregation of data for a defined time period, organized with differing logics in such a way so as ultimately to be pleasing to the eye or psyche if you will. Broadly speaking this covers several different, popular formats - bar, Japanese, HA, APB etc. Also, I recognize that there is no True, verifiable standard for any data point at any level in as much as the underlying Data stream can have multiple sources of variation and error - not even going on to the notion of manipulation.

I would like to believe that my problems with coming to grips with Candle based trading is reflective of a deeper intuition on my part, tho maybe just inexperience or lack of a Gift granted to others explains it. Hence my gradual shift to Line charting, tho you may recognize on my recent chart that there was an underlying candle structure mostly extinguished by the heavy MA line with "spikes" showing thru.

Having said all that, I do believe(perhaps hope) that some qualitative information may be embedded within the Data that when organized as Candles, particularly smoothed HA candles, may be useful.

Best, AG
Do not dwell in the past, do not dream of the future, concentrate the mind.
  • #1,083
  • Mar 15, 2015 4:25pm Mar 15, 2015 4:25pm
Quoting AlbinaGrande
{quote} Hi G, Did not mean to put the fox among the chickens with my chart, but glad to see some commotion developing on this subject which is of great interest for me. Speaking as a complete novice I understand Candles to be merely an aggregation of data for a defined time period, organized with differing logics in such a way so as ultimately to be pleasing to the eye or psyche if you will. Broadly speaking this covers several different, popular formats - bar, Japanese, HA, APB etc. Also, I recognize that there is no True, verifiable standard for...
AG. of course this is an important professional trading discussion and that's the reason it interests me. I almost always display prices as candles, except rarely when the candle covers up something else I want to see and I momentarily switch to bars or line graph. And even though a very long wick or a big candle can attract my attention, I do not normally let it affect my trading at all.

The candles are formed by price and time. Other than the opening and closing of markets, I can't see why the market should or would care when the exact second of the 14:00 gmt candle should start forming or when exactly it should end? In other words, you can shift your time any amount you like and form totally different looking candles, but the price data is just as valid. If your broker and my broker server time is 6 hours apart, our 4 hour and daily candles will be formed totally different. Is one set more right than the other? I think not. Either candle set fails to predict the future equally well. Until I see some strong evidence to the contrary, I still consider candlestick reading just like reading tea leaves, a pseudoscience with no real predictive value. To me, that explains why so many struggle with it.
  • #1,084
  • Mar 15, 2015 5:05pm Mar 15, 2015 5:05pm
Quoting Graviton
{quote} Yes, of course. This is a great side discussion. The question was. What's your edge? Let's have a little fun with this one. I'll take the side that candlestick patterns are just a bunch of made up pseudo science. So, let's critically examine using candle stick reading as an edge. If your broker shows a doji on a Daily, and mine shows a hammer, which is right and which is wrong? Quite honestly, I think we are both wrong for wasting time on such foolishness. It's the same as assuming the market is purposefully drawing patterns with price to...
Hi G,

you forgot that I mentioned the difference is only on the D1 TF or mostly on H4 still. All others should be the same or have very little difference (weekly or monthly chart). IMO it does not matter if I have a doji on my chart and you a hammer instead of it. That is not the point. The psychology behind it is the same. I use them to understand what traders are thinking when they make their decisions. I never watch patterns but I do watch candles. Also candles following each other and I interpret them on my own way. I do not think if there is a trend going up but on the 30M TF there is a last candle which is a huge red candle you would not enter the trade I am sure. Trend might be up in a huge way but if a strong red candle comes you would also check what is going on or wait until it is all over.

Hmmm now I see what you wrote to AG. That is an interesting thought there. I remember there was a similar topic in the beginning of the thread where you got a bit angry when someone started to pick on you, why you use the 1H charts instead of lets say an 81 minutes TF, or why to use a 4H chart instead of a 4 and a half hour chart. Then TFs are just as relative as candles. You still said you accept the way TFs are. So if there we did not have a solution in the end, I think it is not fair to accept trend on specific timeframes but say that candles do not have the same value because we have different time zone.

As I said they have the same value regardless of timezones. You believe to read indicators which are based on past data. Candlesticks are not many days or hours old to predict future. They talk about the present. If the daily is going down too fast on EU, I will know you scaled in too much :-)))

IBO
  • #1,085
  • Edited Mar 16, 2015 12:37am Mar 15, 2015 5:15pm | Edited Mar 16, 2015 12:37am
Quoting IBreakOut
{quote} Hi G, you forgot that I mentioned the difference is only on the D1 TF or mostly on H4 still. All others should be the same or have very little difference (weekly or monthly chart). IMO it does not matter if I have a doji on my chart and you a hammer instead of it. That is not the point. The psychology behind it is the same. I use them to understand what traders are thinking when they make their decisions. I never watch patterns but I do watch candles. Also candles following each other and I interpret them on my own way. I do not think if...
Yes, of course. This is a good discussion. If price is going up, it doesn't matter what your brokers server time is or how the candles are drawn, price is still going up. My point is, reading anything into an individual candle's shape is pseudo science. I don't see any way it could predict future price movement. I'm not talking about the fact that it indicates price up or down or fast or slow, of course that is valid. But if it draws out a doji, or hanging man or long shadow or what ever? Who cares? It has nothing to do with the future. It's just Hocus Pocus and mumbo jumbo, in my opinion. No different than reading palms or tea leaves. I've seen no evidence or logic offered to the contrary, but I'm willing to read it if anyone has any.

I intend no offense to anyone who believes candle shapes hold some forecasting ability. I'm just asking anyone willing to devote a large part of their life and fortune to such a theory to provide any proof that it works or any logical means for why it could work better than just random chance. I'm asking, is your edge illogical?
  • #1,086
  • Mar 16, 2015 6:59am Mar 16, 2015 6:59am
Quoting Graviton
{quote} Yes, of course. This is a good discussion. If price is going up, it doesn't matter what your brokers server time is or how the candles are drawn, price is still going up. My point is, reading anything into an individual candle's shape is pseudo science. I don't see any way it could predict future price movement. I'm not talking about the fact that it indicates price up or down or fast or slow, of course that is valid. But if it draws out a doji, or hanging man or long shadow or what ever? Who cares? It has nothing to do with the future....
Thanks G,

This brief digression has been helpful for me to better organize my thinking re the interplay between Price and Time.

AG
Do not dwell in the past, do not dream of the future, concentrate the mind.
  • #1,087
  • Mar 16, 2015 8:29am Mar 16, 2015 8:29am
I tested out some theories about candlesticks on historical Forex data, and ended up discovering that the time of day has been a better edge than the candlesticks themselves. For example, suppose you back test candlestick pattern X across a range of pairs. You will probably find that there is a time corresponding to a major session open that gives far better results than the total of all the samples.

I believe the major session opens have an edge (especially New York). Midnight GMT is also an important time. It varies a bit from pair to pair. I wonder Graviton whether it is an accident that you tend to trade around New York open and Midnight GMT?

I prefer to use trend, as its an easier way to make sure you participate. I mean, you don't want to miss a good move just because its not quite the right time of day or candlestick or whatever.

Ironically, just following the trend and cutting losers short and letting winners run, tends to produce better results than the smartest "sniper-style" trading, with a lot less stress too.
  • #1,088
  • Mar 16, 2015 9:02am Mar 16, 2015 9:02am
Quoting lemna
I tested out some theories about candlesticks on historical Forex data, and ended up discovering that the time of day has been a better edge than the candlesticks themselves. For example, suppose you back test candlestick pattern X across a range of pairs. You will probably find that there is a time corresponding to a major session open that gives far better results than the total of all the samples. I believe the major session opens have an edge (especially New York). Midnight GMT is also an important time. It varies a bit from pair to pair. I...
Good observations. As others have observed, sniping a few pips one way or the other on entry won't make that much difference in a trade running for weeks. I don't enter when price is trending against me in any timeframe above M15, just as a matter of my own personal trading philosophy, but I agree. The real benefits are seen from cutting losers short and letting winners run and simply participating in pairs showing a strong trend.
  • #1,089
  • Mar 16, 2015 9:09am Mar 16, 2015 9:09am
While we were not watching it, oil dropped to below $44 a barrel. That is a boost for the US and a drag on the Cad. Just sitting tight on My UCad long and waiting to see how this plays out.
Attached Image (click to enlarge)
Click to Enlarge Name: UCad 2nd leg.PNG Size: 53 KB
  • #1,090
  • Mar 16, 2015 11:59pm Mar 16, 2015 11:59pm
Quoting lemna
I tested out some theories about candlesticks on historical Forex data, and ended up discovering that the time of day has been a better edge than the candlesticks themselves. For example, suppose you back test candlestick pattern X across a range of pairs. You will probably find that there is a time corresponding to a major session open that gives far better results than the total of all the samples. I believe the major session opens have an edge (especially New York). Midnight GMT is also an important time. It varies a bit from pair to pair. I...
Yes. So, that's about as simple as it gets. Find a strong trend, cut losses short, let winners run. There are a few questions to answer still, but I think we have addressed them. What is a strong trend, how short to cut losses, how long to let winners run? It's likely that anything beyond that is unnecessary complication that interferes with making money.

How is your trading Lemna? Making a profit?
  • #1,091
  • Mar 17, 2015 7:17am Mar 17, 2015 7:17am
Quoting Graviton
{quote} Yes. So, that's about as simple as it gets. Find a strong trend, cut losses short, let winners run. There are a few questions to answer still, but I think we have addressed them. What is a strong trend, how short to cut losses, how long to let winners run? It's likely that anything beyond that is unnecessary complication that interferes with making money. How is your trading Lemna? Making a profit?
Hi G,

I think that you might be interested this new Thread:

The Market's Illusions & The Human Brain - http://www.forexfactory.com/showthread.php?t=530946

AG
Do not dwell in the past, do not dream of the future, concentrate the mind.
  • #1,092
  • Edited 12:11pm Mar 17, 2015 9:53am | Edited 12:11pm
Quoting AlbinaGrande
{quote} Hi G, I think that you might be interested this new Thread: The Market's Illusions & The Human Brain - http://www.forexfactory.com/showthread.php?t=530946 AG
Great thread AG. The fact is, our minds can see patterns where none really exist. Sometimes the trends that I am trying to trade are just patterns in my mind. I call them elephants in the clouds. Sometimes they represent real trends in the market. I can't tell which are which so I use a sorting method, taking them all for a small trade, and then only keeping those that work out over time and only adding to the best ones.

Some moves turn out to be just random moves that can't ever produce a profit, and I cut my losses short on those quickly. Some are long running trends with a real reason behind them. Like when a central bank changes policy causing a currency to change from going mostly up to going mostly down. So, for instance, The ECB announced open ended QE on Jan 22, 2015. At that time the Euro was about 1.16 and it moved down 300 pips to 1.13 right after the announcement. Over the next 6 weeks, price moved down another 700 pips or so as the market slowly digested the impact of open ended QE in the Euro. Without even knowing the reason for the fall, it was possible to make a nice sum of money just following Euro trends. Perhaps knowing the reason for the move gave me confidence in the trade, but there will be many trades where I won't know the reason for the move until well after I have entered it on technical reasons.

The point is, I have a logical reason for trading as I do. The market simply doesn't move instantly from the old correct price to the new correct price when new information becomes known. It takes time for the new information to be digested. This is a known inefficiency in markets that runs counter to the Efficient Market Theory that people who can't trade often quote. So, even though I may have missed most of the initial 300 pip move down in the Euro right after the announcement, the next 700 pips was there for the taking as the market slowly digested the news of the QE.

A common reaction to someone being told that they may be seeing things that aren't really there is to respond with anger. It can be a scary thought to consider that we can't believe our own minds, but if the examples given in the thread you referenced don't convince people that their minds can trick them into seeing things, then probably nothing will. I should probably approach this topic more gently. Many would rather struggle for years losing real money on one method after another rather than deal with the harsh reality that we have to learn how to trade without knowing what the future holds or even what the past price action means, if indeed it means anything at all. This can be a very touchy subject for some.
  • #1,093
  • Edited 12:56pm Mar 17, 2015 12:02pm | Edited 12:56pm
What's your Edge? (part 5)

This will be the last part of this series discussing creating an edge. We have had some good discussion over the past few days with regards to "seeing elephants in the clouds". Thanks to AG for pointing out a good thread on the subject, http://www.forexfactory.com/showthread.php?t=530946 I purposefully made some controversial statements to stir up some thought and discussion on the subject. I apologize to anyone who was offended if I called their favorite method voo doo, mumbo jumbo, hocus pocus, etc. If the reader is making a fortune with her or his method, by all means keep doing what is working. But if the reader is struggling, it's critical to question the logic of the underlying basis, the "Edge" of the method they are using.

The fact is, the human mind is the most powerful pattern recognition device known. It's so powerful that it will try to see patterns in random data where there really are none. There is no way I know of to only see all the real patterns in the markets and to never see patterns that don't represent real trading opportunities. Since pure random movements can and will eventually produce any imaginable pattern, There is only one way I know to separate the real trends from the apparent ones that are just generated by random price movement. There is one difference that will always apply, real trends can be traded for an expected profit and the apparent ones generated by random price movements will always have a negative expected value after the cost of the transaction is taken into consideration.

We are talking in probabilities here. It's quite possible to profit from trading on some purely random event, like flipping a coin and make a profit, even after transaction costs. It's not the most probable outcome, but it's quite possible. It's also quite possible to trade a very non-random event, like the long term adjustment to a change in central bank policy and lose. It's easy to get tied up in knots and chase that Holy Grail only to find out later, or worse never to find out, that it was only an illusion all along. If the only way to separate the fact from the illusion is to see which one makes a profit after the fact, it would seem that there would be no basis to enter a trade before the fact, which is when we need to know if the decision is right or wrong. This is where we need to exploit the inefficiencies of the market.

We know that in most cases, a real trend can produce a profit if traded correctly and in most cases a random price movement will not produce a profit after transaction costs, no matter how we trade it. We know that market inefficiency causes price to trend over long periods of time, sometimes weeks and sometimes for months or years. It is logical then that the longer we make a profit in a trade, the more likely it represents a real trend. Additionally, the quicker a trade goes negative right after entry, the more likely it does not represent a trend that can be traded for profit.

There turns out to be a small bias right after entry that favors trades taken in the correct direction of a real trend. By taking all the trades that meet some objective criteria defining a possible trend, and quickly closing those that go negative, we get a small statistical advantage in our trading. Basically, what we are doing is taking all trades that meet some tight objective criteria of trending, and letting the market sort them out. We cut losers short, and let winners ride and even add to winners. As the trades progress, some will continue to earn ever greater profits, and some will reverse toward losses. We continue closing those that reverse toward losses and continue adding to those that continue earning nice profits.

This is a probability game. At any point in time, there is a chance that a trade that has been earning a nice return is just an "elephant in the clouds" and it will reverse toward a loss for no apparent reason and it will have to be closed. It's also a given that we will often close out a loser that latter turns out to be a great trade. But over the long haul, with excellent money management and risk controls, we can exploit this bias toward winning with real trends and losing with random price motions to help select those trades we want to quickly close and those that we want to add to. In the end, it's all about selecting what appears to be a strong trend, cutting losses short, and letting winners run. Don't fool yourself into thinking you have found the Holy Grail. Don't let anyone else fool you into believing the Holy Grail exists and that they have found it. Trading is a journey, not a destination. Best success to all.
















My favorite illusion. Stare at the + for a while. I never tire of this one.
http://www.forexfactory.com/attachme...1&d=1426306915
  • #1,094
  • Mar 17, 2015 12:38pm Mar 17, 2015 12:38pm
Quoting Graviton
What's your Edge? (part 5) This will be the last part of this series discussing creating an edge. We have had some good discussion over the past few days with regards to "seeing elephants in the clouds". Thanks to AG for pointing out a good thread on the subject, http://www.forexfactory.com/showthread.php?t=530946 I purposefully made some controversial statements to stir up some thought and discussion on the subject. I apologize to anyone who was offended if I called their favorite method voo doo, mumbo jumbo, hocus pocus, etc. If the...
Hi Graviton,

Simply great and the image (illusion is superb!).
  • #1,095
  • Edited 5:07pm Mar 17, 2015 4:51pm | Edited 5:07pm
Quoting Bendz
{quote} Hi Graviton, Simply great and the image (illusion is superb!).
Glad you enjoyed Bendz. Best success to you.

G

Anyone have questions, comments, discussion?
  • #1,096
  • Mar 17, 2015 6:43pm Mar 17, 2015 6:43pm
Are you short GU right now? I have two positions open right now that are well in profit (approx. +500 and +300). I have my stops in place but with FOMC tomorrow and price near some support, I'm wondering if I shouldn't just take the nice profit I'm in right now. The greedy side of me is saying let the price go I'll still come out well ahead if it hits my stop and if it goes my way, the profit will be that much bigger. My sensible side is telling me take the profit and move on. Wondering if you had an opinion.
  • #1,097
  • Mar 17, 2015 7:19pm Mar 17, 2015 7:19pm
Quoting TheDirtySerb
Are you short GU right now? I have two positions open right now that are well in profit (approx. +500 and +300). I have my stops in place but with FOMC tomorrow and price near some support, I'm wondering if I shouldn't just take the nice profit I'm in right now. The greedy side of me is saying let the price go I'll still come out well ahead if it hits my stop and if it goes my way, the profit will be that much bigger. My sensible side is telling me take the profit and move on. Wondering if you had an opinion.
I'm not in GU at the moment, but the risk from the FOMC meeting seems to be tilted in your favor. That is to say, it's unlikely the FOMC will discuss any further easing for the USD. Any surprise should be toward tightening sooner than expected, but that would be a surprise in your favor. In the end, I expect the FOMC to drop the "Patient" phrase in their statement and add some other language that says about the same thing. I expect a lot of volatility around the announcement and then for things to resume with no major change. Of course, don't let a winner turn into a loser, but that doesn't seem likely. Steady as she goes.
  • #1,098
  • Mar 17, 2015 7:29pm Mar 17, 2015 7:29pm
Yeah I have the same feeling regarding FOMC. I guess I'll play it probably like you're playing your UCad long, tighten up some to ensure generous profits but give myself the opportunity for bigger gains. Trade smarter right? All the best.
  • #1,099
  • Mar 18, 2015 5:07am Mar 18, 2015 5:07am
Hi Graviton, yeah I am doing OK thanks. Been short EUR/USD since 1.1250 and now tightened stop to just above 1.0650 so probably will be stopped out later but thats OK, if USD continues down can re-enter.
Unfortunately I never got to add an extra lot that I was looking to put on that, as I was waiting for a pull back that just never really came!

Sometimes I wonder if its better to just put lots on automatically once you are in a very healthy profit and not worry about catching a good retrace.

If FOMC is good for USD later also looking for UCAD and AUDUSD entries.
  • #1,100
  • Mar 18, 2015 8:38am Mar 18, 2015 8:38am
Quoting lemna
Hi Graviton, yeah I am doing OK thanks. Been short EUR/USD since 1.1250 and now tightened stop to just above 1.0650 so probably will be stopped out later but thats OK, if USD continues down can re-enter. Unfortunately I never got to add an extra lot that I was looking to put on that, as I was waiting for a pull back that just never really came! Sometimes I wonder if its better to just put lots on automatically once you are in a very healthy profit and not worry about catching a good retrace. If FOMC is good for USD later also looking for UCAD and...
I'm glad you brought that up Lemna. I've had the same problem. The very best trades, the ones you wish to get another lot on the most, are the most likely to not offer a retracement to add the additional lot. The way I'm currently handling this is I have a price where I want to add the additional lot if I get a retracement, say around +75 pips, but if price continues to a given point above that price, say +100 pips, with no sign of turning back, then I just go ahead and throw the additional lot on.

My thinking is the trade has already proven that it is more likely to increase in value than to decrease. The probability that any random point in price is THE maximum price (for a long) is low. So, in most cases price will continue increasing for some time after the new lot is put on. There will be times when price reverses just as the new lot is placed on and we have to cut our losses if the retracement proves too deep, but that goes for any trade. But given the recent history of the price movement, I think odds favor putting the additional lot on if price reaches a certain pre-determined level with no retracement.

I'd be interested in hearing others opinion on this.
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