Higher Edge within a Single Candlestick

Nah i dont think you are crazy, i think you are intelligent and that is different. About using subjectivity: Thats a good philosphical question. A lot of math and physics people try to use that kind of stuff in trading. I think they are missing the point. If you have a nice "trend" it can end when ever. So it doesnt have "velocity" like falling objects. So the fact that it moves so and so fast either way is not enough to think it will continue OR stop. To me trading is a matter of mass psychology, not physics. Its about understanding THAT subjectivity. Think of it as the world marked as sort of a living, thinking entity that resides in ALL the humans connected to FOREX in any way. Which is everybody that uses money in any form or shape. Dont matter if you are a beggar on the street of Barcelona begging for 50 eurocent coins, dont matter if you are a CEO of an investment bank or if you are a fireman in the streets of New York, we are all in it as long as we use money. We are all affected by it and we are affecting it all the time. It IS a subjectivity. It IS very fucked up and noone has the whole grasp of how it works.

Because you have to understand it to its complex level before you can simplify it. How can you simplify something you dont thoroughly understand?
Its like saying 'im going to get rid of my cars hand brake because i dont need it to drive, so i have less things to focus on when i drive'.

They still do - Bids/Offers (Quotes) + Ticker tape. In the past they also annotated key price points on a piece of paper to remember specific intervals.

Nope, but i know money moves the market. and the bigger the money, the bigger the impact.

Each timeframe 'candle' has a repetitive expected amount of movement. So maybe, a specific time frame comes down to your expected holding time vs potential pips won/lost.
If i say my average holding period per trade is 15mins but i only trade on daily chart, well to me it doesnt make sense.
If i say my average holding period per trade is 15mins but i only look upto 15m chart, well it makes more sense to me.

Of course, these are my opinions. And you know what they say about opinions? Its like an asshole and everyones got one etc...haha

Hi,

Firstly, Neio, thank you sooooo much to open this thread!
Since I have found this thread, I focused on the single candlestick and researched many threads in FF.
It was surprizing, not just surprizing but rather I was shocked, that almost all threads discuss about pattern, formation, S&R, demand&supply, etc.
People use candlestick for their analysis, but they never analyze candlestick itself.
Yes, I was shocked.

I also thank CrucialPoint for openning my eyes.
http://www.forexfactory.com/showthre...34#post4690034
Since I read this post, I spent lot of days just staring at a single candlestick.
I even tried many magic eye illustrations every day to discover something I have never seen
Magic eye didn't show me the edge, but I currently do magic eye everytime I use computer.
And everytime just before trading as one of routine. At least, it is good for my eyes
And other posts are helpful for building up the mentality as a trader.

Although I have not found the edge within the statement "95% of the time price will close above or below the open", few weeks ago I have found the edge within a single candlestick that worked in all market condition and will work in the future.
And so I traded demo 2 weeks with only sticking to the edge.
Maybe my edge is not the same as Neio, as I have to face with many loss.
But good thing is at least my edge is profitable in a long run and I know exactly what I am doing and what market is doing.
It was pretty comfortable to trade because I know exactly what I have to do and I have only one thing to care.
It fits to my trading style.
Sure I have lots of stuff to do; to not blindly jump in the market to avoid loss, to hold position longer to maximize profit, trade management, money management, etc.
As TRO said, it's not what I trade, it's how I trade.
I must learn how to trade.
I use 1 hour candlestick of EURUSD and I use OPEN PRICE as my reference point.



Thank you,

You mean you take the reference point as open of the current (progressing) candle or previous candle jimsterk?

Hi skfx,

Thank you very much for taking the time to post so much valuable information in this thread. I think it's essential reading for any short-term currency trader, and very useful for everyone else too! Next time you drop by, I wonder if you might be able to answer a couple of questions I have? Here they are:

1) I've noticed that you trade currencies using the CME futures products rather than spot. Do you always do this? If so, is it because you use tick charts? Or because the DOM and volume information is more accurate? Or is it just personal preference?

2) The only thing you wrote which I didn't completely understand was this:

I hear the term "mispricing" a lot on this forum, be it from gaps, dissimilarity, transient prices, and so on. What is your take on mispricing, how can we find it, and how can we take advantage of it?

Thank you very much

To close, I'd like to repost a few of my favourite quotes of yours from this thread (paraphrased slightly in some cases). Committing these to memory and reciting a few before each trading session would be a good idea I think!

Regards,
NT

The market dictates what I do and not the other way around.

I just listen. The market wants me to flip, I'll flip.

I am not trading price, I'm trading performance.

If you want to make your life easier, just sell on weakness and buy on strength.

Believe it or not, I'm only ever trying to answer two questions when I trade:
1. What side of the market should I be on now? Long or short?
2. What is the lowest risk trade on the 'right side' of the market?

Trading is hard, it takes work and dedication.

Your best trades (fast, coupled with almost zero heat) will be on the back of simultaneous liquidation AND initiation. At this point everybody is thinking the exact same thing, whether you're on the right side or the wrong side.

You have big money selling upticks. When it's on the canvas, they won't let it up. When you start getting paid on a move and you're big money, you're likely to do exactly the same thing going forward. Why? Because you've been getting paid.

London and NY overlap can be some of the hardest, messiest trades to nail down.

Your biggest issue in terms of profitability will be: yourself.

Neio, you really got me thinking. Several times. The fact that SKFX has his hand in this got me thinking even more. Several times. IN fact 7-8 times or so on different occations.

Here is my contribution to this thread.



And then what?



Lets have another go





And then we go zooooooooooom out!


Oh i misspelled a few things here and there but i dont give a shit.

Hi North.
You're welcome matey.

I am currently away on holidays camping but only just a little way out of town and will be stopping by the office on Tuesday and will answer your questions and include some other examples lately
of trades I have taken on the ES futures contact.

I noticed also things mentioned in posts prior that I will expand on.
Good safe weekend to all.
Regards
Stephen

Thanks Stephen, looking forward to it! There's no rush of course. Enjoy your camping! We went camping last weekend but it was bloody freezing. Moral is: if there's still snow in the campsite, go to one lower down

it can be
thank you for the idea i liked it so much

So everyone interested in this thread should be asking and finding answers to questions. How would you successfully trade a single candlestick? We know we can expect movement. So how do you capitalise on that movement?

Thinking about when to enter. When would you have entered on that single bullish candle that CP posted? Logically, you would be buying in the lower part of that candle. But where? Below open? Above open? At Open? A deviation from open? How would you know when to get out? When would you know that you are wrong? When is the bullish candle likely to reach exhaustion? Where is price most likely to range/consolidate? What would that type of candle look like? How would you avoid it? If we want to capture the trend within the single candlestick. We profit when price moves that way. When price ranges it is less predictable.

These are questions everyone should be finding answers too. It is possible to trade a single candlestick and be profitable once the answers to those questions are found. The rest is down to psychology and your ability to execute because our mind is not the most helpful when it comes to trading especially when we have built up certain biases. Attempting to capture a move within a single candlestick (which we can expect as 95% of the time price will move from open) allows us to focus our trading and eliminate a lot of other things that distract us.

If you could only make one trade during the lifetime of candlestick how would you do it?
Is it really not possible to trade that way? What else do we need?

Regards

Neio

Just a quick note to all that have shown an interest in my posts.

Due to this being Neio's thread and my posts not really addressing single candlesticks, i have set up a fresh thread(http://www.forexfactory.com/showthread.php?t=544894) which will carry on from my posts in this thread.
The new thread i will not be devoting my life to hahaha(i've made a promise to myself not to let it take over my life and i keep my promises ).
My attention to the new thread will be of a casual nature, posting randomly only as time permits.
All posts i have made here i will place those links in the new thread.

Apologies to Neio for the interruption.
It would be wrong of me to entertain the conversation going forward regarding candlesticks and using them to trade from, solely due to my belief system and experience.
There isn't anything wrong with historical price charts, they have value. Their value though is limited and other tools MUST be used to gain better than average results.
All the best.

Regards,
Stephen

That bullish candlestick (or any candlestick) could have been bearish.


Is it possible to trade the price without any type of formation such as a candlestick or bar type etc etc?


Do we need to "box" in the price in forms of bars to trade?

Been seeing a lot of people talking about using the previous candles close direction as a way to give an indicator of what the next candle will do. Hate to burst any ones bubble but the previous CLOSED candles provide no edge at all. If candles matter, the ONLY one that will and does is the current(this applies to CANDLES not PRICE, they are very different. candles are made up by price. Price is not made up by candles).

Please see the study I did a few weeks ago(copy and pasting from an email I sent a buddy the other day so I apologize if it is written in letter format).

============================
First Experiment.

Idea: I had an idea that there must be something useful in the distribution of candle sequencing as price progresses. For example the odds of price closing green 5 hours in a row on the 1H chart cant be the same of price closing green 6 hours in a row. If this is true one could bet after say 5 candles, there is a higher probability the next candle will be red instead of green.

Start of analysis. I modified an indicator on MT4 that will give me the candle sequencing order for x amount of candles. I set it to 10,000 but my MT4 would only let me properly analyze around 4000-8000 candles at time. Although the sample wasnt as large as I liked it is still a decent size.

The Numbers: So after analyzing all the timeframes it is very rare that a candle will be green or red more than 10 times in a row. If it does happen its like .01% of the time there will be a sequence of red or green larger than 10.

Here are the numbers of the 1 Hour EURUSD chart.



Just like expected the chance of candles sequencing 6 times green is less than the chance of it sequencing 5 or 4 times. First thing I noticed was the probability of each sequence happening cuts roughly in half for each step down the table. At first glance I thought these numbers were definitely tradable. Once price has sequenced say 5 times the odds it will sequence 6 is 1.23% so bet the next candle will close in the opposite direction.

Next I decided to see how this plays out. Here are the same numbers with the win and losses associated with better against each sequence.

**IMPORTANT NOTE! THE ONLY REASON THE GREEN CANDLES HAVE HIGHER % THAN THE READ IS BECAUSE FOR THE SAMPLE TAKEN PRICE HAD INCREASED OVER ALL. IF THE SAMPLE WAS A CURRENT OPEN CANDLE, IT FAVORED BULL SEQUENCES BECAUSE IT WAS HIGHER THAN WHERE IT STARTED! THIS IS THE ONLY EDGE CANDLES WILL EVER PROVIDE AND WHY THE CURRENT OPEN CANDLE IS ALL THAT MATTERS**



So if you bet that after 1 candle price is likely to change, youd win 52.2% of the time
if you bet that after 1 candle price is likely to reverse youd with 51.05%. Basically there is no edge at all especially after factoring in transaction cost.


Candle sequences 1-6 all nearly boil down to 50/50. These sample sizes range from 22-937.

After the 6th sequence the numbers start to drastically change from 50% -> 60%-> 87.50% ->0% -> 100%

While the sequences being tested have a decent sample size >30 the distribution is fairly balanced with slight variations one way or another(All of this data is above 50% because price had decreased since the beginning of the sample which will make it automatically favor bear sequences over bulls).

It seems like the sequences above 6 have odds that are tradable but after reading some more this is only because of the Bernoulli effect and the drastic variations of win rates between 0-100% for the last few sequences would be considered completely normal distribution based on the sample size.

"In a Bernoulli trial, the outcome is random and can have one of two values: "yes" or "no", "boy" or "girl", "heads" or "tails", and so on. The variance of a Bernoulli distribution is: Var(X) = np(1-p) where n is the number of trials (100 in this case), p is the expected probability of outcome 1 and (1 - p) is the expected probability of outcome 2. Since we expect the probability of a coin landing on heads to be 0.5, the variance of a coin toss experiment with 100 trials should be (100)(0.5)(0.5) = 25. The square root of 25 is 5, so if you repeated a 100-trial coin toss experiment over and over, the majority of them (about 68%, assuming a fair coin) should yield between 45 and 55 heads (45 to 55%). Only about 32% of the experiments should produce fewer than 45 or more than 55 heads, and only about 4% would be expected to produce fewer than 40 or more than 60 heads. Just to reiterate and crunch what I've already said, if you flip a fair coin 100 times, there's a 68% chance that the number of heads will be between 45 and 55. Any variation within that range should be considered COMPLETELY NORMAL!

Now let's say you flipped the coin 10,000 times. That experiment has a variance of (10,000)(0.5)(0.5), or 2500, and a standard deviation of 50. Although the standard deviation is larger it was in the 100-coin experiment, the sample size is MUCH MUCH larger. The majority of your 10,000-coin toss experiments should produce between 4950 and 5050 heads, or between 49.5 and 50.5%. That's much closer to giving you the expected 50/50 distribution than what you'd get with a 100-coin toss. If you increase the number of trials to 1,000,000, you get even closer to the 50/50 distribution: most million-coin experiments should fall from 49.95% and 50.05% heads.

Conclusion: All of the win rates would be considered completely normal based on their samples sizes meaning that there is no edge in how the price sequences and no matter the the sequencing of the candles before the current candle, the odds of it closing red or green, will be basically 50/50 as your sample size grows.

This market is god dam efficient..

=====End of Email=====

There you have it folks. If analyze CANDLES the only CANDLE that can give you any edge at all is the current one because if it is higher than where it started, bull sequences will be favored and the same goes with bearish sequences if the sample is lower than where it started.

please correct me if I is wrong.....but any number of candles larger than 1 candle IS the current candle on some larger timeframe. so its always One candle as far as I am concerned. Right?

LOL


Some of you people are so uneducated it makes me laugh.

Keep treating the market as "One Candle" and stay in it as long as you can

Only losers leave the poker table when they are UP on the day

I have an advanced degree, but it does nothing to make me more wise or more foolish.

or "Win rate is not the most important factor in finding a good trading method. Profit potential/risk is."

I agree. But if you do not know a systems win rate, You do not know the minimum potential risk/reward you need to use in order to be profitable and you are literally playing a guessing game when you bet.

In effect vspatrick you're right.

I would have to say though, that you won't know exactly your profit potential because you cannot see into the future, therefore i'd be inclined to replace 'profit potential' with 'high probability'.
You'll get probability through statistics.

High probability/Low risk.
Wash.Rinse.Repeat.

Regards
Stephen