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About Candlesticks: Why they were created? What do they reveal?

  • #101
  • Dec 9, 2015 8:54pm Dec 9, 2015 8:54pm
I didn't say you can't make money with trading candlesticks.
I'm sure there are traders who do it to a certain extent, maybe additional with "reading" the market (price action).

In the past I did that, too.

I looked for the most volatile instruments (with big daily movements and tight spreads).
Since there is no T&S all you can do to "feel" the market was to make the price action "more visible" and in the same time to use the best TF for an acceptable trading condition.

Just like that:
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  • #102
  • Dec 9, 2015 10:08pm Dec 9, 2015 10:08pm
Quoting UnnamedPlayr
I didn't say you can't make money with trading candlesticks. I'm sure there are traders who do it to a certain extent, maybe additional with "reading" the market (price action). In the past I did that, too. I looked for the most volatile instruments (with big daily movements and tight spreads). Since there is no T&S all you can do to "feel" the market was to make the price action "more visible" and in the same time to use the best TF for an acceptable trading condition. Just like that: {image}
hello,
whats the advantage of separating buyers and sellers like that ?
  • #103
  • Dec 10, 2015 3:01am Dec 10, 2015 3:01am
Quoting UnnamedPlayr
I didn't say you can't make money with trading candlesticks. I'm sure there are traders who do it to a certain extent, maybe additional with "reading" the market (price action).
I'd like to add something to this as the phrase "price action" is quite ambiguous. Many readers here on FF believe that 'price action' is the reading of a chart and identifying certain candle formations, to identify strength/weakness and even individual entries. For example, taking a short on the break of a low of a 'bearish pin bar' formation. Absolute volatility analysis such as this is not reading price action and I believe that it is through the use of the term 'price action' by commercial interests, that had added to the confusion.

The truth is that there is no objective description to 'price action', since it envelopes many different forms of analysis. Reading 'price action' is more about 'relative volatility' analysis and monitoring 'relationships' amongst different asset classes, to provide you with information that might not be known amongst other market participants.

There are lots of ways to monitor 'price action' and I will mention a few here in attempt to clear up the confusion.

Say if I were to look at going long the S&P on an upside breakout yet, when the S&P breaks out the NQ and the DOW fail to follow suit and actually form a new intraday low. This is telling me something very important in that I should not expect the rally in the S&P to be sustained. If I were watching the energy markets and nearly all the classes are breaking out to the upside yet crude is failing to rally. Just this could turn me bearish on crude. Jesse Livermore also made a few examples of price action in his books when he talks about stocks failing to respond correctly to good or bad news etc.

UnamedPlayr has also brought examples to the table in how he is building replica instruments to have something to compare the action of one instrument to another.

Reading 'price action' is no easy task and takes years of market experience to be able to recognise, which is why I believe it to be an 'edge' over other participants. Anyone who has interest in furthering this should look at away of designing a framework to assist in monitoring 'price action'. Provided this is done correctly I am sure you will be heavily rewarded for the time taken in doing so.

I hope this clears things up.
  • #104
  • Dec 10, 2015 5:47am Dec 10, 2015 5:47am
Quoting diceman555
{quote} I would say that these four points reveal much more. yes they certainly are misleading. Everything only reveals the information that is being considered for measurement but most things require those irrelevant points to understand something THAT REVEALS MORE. not picking at your post but it seems silly
Objectively, candlesticks display the open, high, low and close. Any revelations beyond this is a function of one's beliefs about markets.
  • #105
  • Dec 17, 2015 6:12am Dec 17, 2015 6:12am
Quoting metta87
{quote} hello, whats the advantage of separating buyers and sellers like that ?
It is just a visual effect to focus on the price action.

Combined with the daily chart to know and follow the trend (market conditions).
I was trading the 15min actions but being aware that any important news could affect the movements instantly.
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  • #106
  • Dec 23, 2015 2:45pm Dec 23, 2015 2:45pm
Quite some time I did not post in the thread, as I do not have much interesting thought to add yet.

Though I would say that some people do not get the aim of the thread when I created it : it was not about candlesticks patterns or price action analysis derived from candlesticks. It was more about questionning its creation as a tool, and above all, once created, WHY KEEP IT AS A TOOL. If it was kept through that many years, it was because it was useful. It still is, but most of us don't know how it is/can be useful. The most useful parts of a candlestick is certainly not about candlesticks patterns.
It somehow reminds me a bit the video posted by Crucialpoint, about a scandinavian archery master and the history behind archery and how knowledge has been somehow lost. ( I just found it again, here it is :
Inserted Video
).

Individually, we don't know how to use candlesticks anymore (except very few individuals I guess, who rediscovered it, or who got knowledge transmitted), but our global consciousness as a group (I mean the global consciousness of every people who deal with chart or technical analysis) know that it could be an important tool. If not, it would not be that widespread.
We could just use close line chart, for example.
Obviously, all this is just my modest opinion, perhaps it is wrong, I might never know and you are free to think whatever you want about that.


Also, I just wanted to restate some common information and simple thinking :

We know that on average :
- the body of a candlestick will be around 50% of the candlestick range
- the upwick will be around 25% of it's range, and so will the downwick
Which appears normal as 50% of price move will be range expansion, and 50% will be range contraction

- Also, it could be more accurate stat but, we can safely affirm that more than 50% of the time (I did not analyse that many timeframes but it seems it could be closer to 70%) one of the extrem (high or low) will happen in the 1/6 of the candle duration

So, let's say you look at a 1min chart, and that the previous 1min candle is considered as the end of 1/6 of duration of any Timeframe you want to look at ( 1/6 of 6min; 15min 1/6 of 30min; 1/6 of 60min; 1/6 of 120min etc...), you might have an idea of how the developping candle (depending the timeframes you look at) might look.
Maybe from the overlapping of multiple timeframes, some converging prices could emerge and help a bit in making good risk/reward trades. Though the problem is that it is all based on averages, which might be not that reliable...
Just some unverified thinking, as usual...

That said, I think that diceman555 said something very interesting in another thread and what I typed above reminds me a bit about what he said :
"THIS MARKET IT SO EFFICIENT
yes it can be, there is one thing this market can guarantee and that is to be efficient.i would suggest one should look to trade that guarantee...."
( http://www.forexfactory.com/showthre...60#post8325460 )
It might make us tackle the problem the opposite way that we are used to.



Then, some more ramblings :
Whatever the timeframe we look at, the average candle look the same, but the longer is the Timeframe observed, the bigger will be the average absolute range. "Yeah, thank you Captain Obvious" some will think.
But, could we derive from that the idea that one of the inherent property of price (which might imply more properties then) would be that it tends to deviate from itself : The older your reference point is, the more probability there is that this point won't be revisited ?
Some of you will remember that sentence from Crucialpoint :
"95% of the time, Price will close either above or below the opening price. Less than 5% of the time, Price will close at its opening price."
( http://www.forexfactory.com/showthre...10#post3394110 )
If we consider a same reference point (Open) for an infinite number of Timeframes, then certainly any tick in the future at the same level of the reference point mean that a candle closed at that same reference point. And it means that there was less than 5% probability that it happens.
Is this reasoning wrong ? Can we do something with this ? If so, what can we find if we dig deeper ?

I wish you all a Merry Christmas and Happy New Year.
May our trading knowledge skyrocket for the coming year, haha.

030985
  • #107
  • Dec 23, 2015 4:56pm Dec 23, 2015 4:56pm
Quoting 030985
But, could we derive from that the idea that one of the inherent property of price (which might imply more properties then) would be that it tends to deviate from itself : The older your reference point is, the more probability there is that this point won't be revisited ? Some of you will remember that sentence from Crucialpoint : "95% of the time, Price will close either above or below the opening price. Less than 5% of the time, Price will close at its opening price." ( http://www.forexfactory.com/showthre...10#post3394110...
Had a chance for a pm to CP some time ago. Part of my message was:
"
Most recently it occured to me that the statement that 95% of the time price ends up above or below the open can be used as a probabilitistic measurement for the future path of price. Like in a Monte Carlo determination of pi, the price "exhausts" the interval of price and then moves to the next one. And it tends to prefer to go away from the exhausted price interval, thus forming a trend. So it is basically an argument for a breakout/Donchian type strategy...
"
Merry Christmas and all the best!
k
  • #108
  • Dec 24, 2015 12:44am Dec 24, 2015 12:44am
Quoting 030985
Quite some time I did not post in the thread, as I do not have much interesting thought to add yet. Though I would say that some people do not get the aim of the thread when I created it : it was not about candlesticks patterns or price action analysis derived from candlesticks. It was more about questionning its creation as a tool, and above all, once created, WHY KEEP IT AS A TOOL. If it was kept through that many years, it was because it was useful. It still is, but most of us don't know how it is/can be useful. The most useful parts of a candlestick...
Open.
High.
Low.
Close.
  • #109
  • Dec 24, 2015 4:32am Dec 24, 2015 4:32am
  •  Neio
  • Joined Oct 2012 | Status: Can't think outside?Enlarge the box | 688 Posts
Yes, it provides Open. High, Low and Close information at a glance...but how to interpret that information?

It has really been answered here...

Quoting CrucialPoint
A bullish candle is biased to the upside. A bearish candle is biased to the downside. There are more breakout to the upside than the downside on a bullish candle. There are bigger movement on the upside than the downside on a bullish candle. There are more tick points to the upside than the downside on a bullish candle. There are more fakeout and reversal on the downside on a bullish. You don't need to know the future candle and try to predict the next candle >>> These statistical facts will occur as long as price remains...
Basically your best odds are going long on a higher time-frame green candle and going short on a HTF red candle. Not as easy as it sounds admittedly, but if you are to stand any chance in this market this is what you need to be able to consistently do.

Practically, I implement this by not going against the hourly candle, cutting losers and trying to let winners run. For scalping, winners only need to be less than 10 pips a time but sometimes you end up catching more as you are on the right side of the candle. For sharp reversals, sometimes you just need to get out.

There are variations to this as there are a number of different references that can be used to keep you consistently on the right side of things.

Regards

Neio
An expert is a man who has made all the mistakes which can be made
  • #110
  • Dec 24, 2015 7:13am Dec 24, 2015 7:13am
Quoting Neio
Yes, it provides Open. High, Low and Close information at a glance...but how to interpret that information?
Candlesticks do not possess any kind of latent special quality that is made known through "correct" interpretation.

The data is open, high, low and close and any way to rely on such information to enter a trade is a matter of personal opinion.
  • #111
  • Dec 24, 2015 7:58am Dec 24, 2015 7:58am
Quoting Atokys
{quote} Candlesticks do not possess any kind of latent special quality that is made known through "correct" interpretation..
I think they do...even when the time series is random, as long as the series has certain fractal properties. OHLC is very valuable information, in fact the more OHLC data points one has, the greater the objective ability to "predict" that non-obvious "special quality".
  • #112
  • Dec 24, 2015 8:18am Dec 24, 2015 8:18am
Quoting Thoughts
I think they do...even when the time series is random, as long as the series has certain fractal properties. OHLC is very valuable information, in fact the more OHLC data points one has, the greater the objective ability to "predict" that non-obvious "special quality".
Its just a misconception unique to FF forums.
  • #113
  • Dec 24, 2015 11:52am Dec 24, 2015 11:52am
Quoting Neio
Yes, it provides Open. High, Low and Close information at a glance...but how to interpret that information? It has really been answered here... {quote} Basically your best odds are going long on a higher time-frame green candle and going short on a HTF red candle. Not as easy as it sounds admittedly, but if you are to stand any chance in this market this is what you need to be able to consistently do. Practically, I implement this by not going against the hourly candle, cutting losers and trying to let winners run. For scalping, winners only need...
hello Neio,
are you profitable now that you know how to interpret that information ? i hope you wont mind me asking. Thanks
  • #114
  • Dec 25, 2015 8:39am Dec 25, 2015 8:39am
Quoting Atokys
{quote} Its just a misconception unique to FF forums.
Perhaps there could be another perspective, OHLC data (I think) could be a useful way to "foresee" something a really smart individual termed recurrence.
  • #115
  • Dec 25, 2015 9:36am Dec 25, 2015 9:36am
Quoting Thoughts
Perhaps there could be another perspective, OHLC data (I think) could be a useful way to "foresee" something a really smart individual termed recurrence.
As you said, its a perspective. There are as many 'perspectives' to trading as there are people.
  • #116
  • Dec 25, 2015 9:56am Dec 25, 2015 9:56am
wow..very informative..but our minds is greater than candle stick method
  • #117
  • Dec 25, 2015 3:59pm Dec 25, 2015 3:59pm
Quoting Atokys
{quote} As you said, its a perspective. There are as many 'perspectives' to trading as there are people.
My application of the word 'perspective' was not towards the data we glean from candles other than OHLC, as being subjective, that data is objective. Just for a little bit of clarity on this I'll go a step further, what I was particularly referring to is a numeric quantity derived from candle sticks that has a direct relationship with recurrence. Recurrence (I'm assuming youre familiar with the concept) is not an opinion, its a fact. Hence OHLC is not the only objective data that candles depict.

I'm applying the word 'perspective' to the view we take in the discussion that all we could objectively see when we look at candles is exclusively OHLC..and I feel the discuss could certainly accommodate directions other than that one.
  • #118
  • Dec 25, 2015 7:21pm Dec 25, 2015 7:21pm
Quoting 030985
From my studies of the Dax, looking at the regular trading hours over the last 6 years, 77% of Up days [Open<=Close] had their Low occurring before the High, and 80% of Down days [Open>Close] had their High occurring before the Low
This sentence stood out to me since it describes the kind of research that technical edges are built on (esp. automated ones). However, this kind of data crunching is not dependent on candle sticks. Candle stick charts themselves are just another way to present visually what is already on a bar or line chart. They do not themselves provide any inherent edge but rather present price data in a different form (much like indicators such as RSI, etc.)

Candlesticks can act as a short-hand or summary on the higher time frames for what is going on on the lower TFs. They are a visual tool, thats all.
Since they act as a short-hand, they leave out a lot of details concerning price on the lower TFs. That is because several different price action behaviors on the lower TF can map to one candle pattern on the higher TF. The following is also valid (in addition to the one you drew in your example):

Attached Image



___________________________________________
>> Quinton’s Simple & Effortless Trading thread
  • #119
  • Dec 26, 2015 12:21am Dec 26, 2015 12:21am
Quoting Thoughts
{quote}My application of the word 'perspective' was not towards the data we glean from candles other than OHLC, as being subjective, that data is objective. Just for a little bit of clarity on this I'll go a step further, what I was particularly referring to is a numeric quantity derived from candle sticks that has a direct relationship with recurrence. Recurrence (I'm assuming youre familiar with the concept) is not an opinion, its a fact. Hence OHLC is not the only objective data that candles depict. I'm applying the word 'perspective' to the...
Data mining for such patterns (in tick data) is a complex process that is not accessible to retail traders. Most of the recurring patterns that people think have merit can also be found in random data.
  • #120
  • Dec 26, 2015 4:36am Dec 26, 2015 4:36am
Quoting Thoughts
{quote}My application of the word 'perspective' was not towards the data we glean from candles other than OHLC, as being subjective, that data is objective. Just for a little bit of clarity on this I'll go a step further, what I was particularly referring to is a numeric quantity derived from candle sticks that has a direct relationship with recurrence. Recurrence (I'm assuming youre familiar with the concept) is not an opinion, its a fact. Hence OHLC is not the only objective data that candles depict. I'm applying the word 'perspective' to the...
The interesting information relating to recurrence is that it visually gives you the market structure in such fine detail.i use this for trading indicies ie ft100,its far more manageable than in spot ,there is far to much data to track manually as i do and find advantage.
The first thing i discovered was how efficient the market is.or i should say thrives to be efficient,advantage from the recurrence itself is most often lost from trying to capture as it corrects.advantage can be gained imho if you look at this in a group of sets,this way you are trading the efficiency as to its inefficiency as the latter somewhat implodes ie,the markets efficiency cancels out its inefficiency,thats why i say trade the guaranteed truth that it remains efficient.to prove this fact simply log every price between 10 and 20 pips and its % of return.
the structure of the market is clearer through this view point.when the market trends it leaves clues as to the liquidity momentum and volumes ,depending how steep and accelerated this trend is ,it will determine how long it remains exhausted during its phase of efficiency and the corrections it will make .this phase is were it can return to efficiency without returning to the price levels that recurrence traders are expecting.this is for only one set 10 to 20,there is a change in the higher sets .the market structure has to adapt and does so very well to maintain it perfect state on every level or set.this is why the re traces dont adhere to fibs and such ,they are wriiten into the structure already
i could write pages and pages on this topic and perspective of the market.
does one single candle stick assist or hold information .ones initial thoughts would be no but personally i say yes,if for no other reason the candlestick your watching is forming its historic past.............somthing thats also not mentioned very often which is within every candlestick is volume and its potential force,energy ,a bullish completed candle can be measured for its maximum potential ,ie,if conditions remain similar the max from that potential its exauxtion point you will see a similar bullish candle both in volume and energy for price to continue higher .it always requires new informed money.

im rambling now

happy new year everbody
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