Candlestick - what time frame do you use?

For any who take note to candlesticks when making trading decisions, what time frame do you use? I use the 4 hour candlestick, as I find shorter time frames can give false signals.

Candlestick theories and tips, go..........

I'm not trading live yet, just observing what works best and currently testing H4 and H1 breakouts and yesterday was a good day for H4. H1s give entries at better price and earlier in the move but they also give more false signals. Still testing.

Hi there. I use weekly time frames. Its suits my personality and life style and I find it is much more resiliant to interweekly news events and provides a better overall picture. Simililarly, it gives me much more time to relax and mentally focus on what is happening with price.

Hey AdamSydneyAu,

This is a nice little discussion you brought up and I'll chime in on some candlestick tips to get some of the newer traders to begin thinking outside of the box..

Candlestick Theories and Tips

I take note of candlesticks on almost all time frames because I do a quick drop down from the daily time frame down to the 15-5 minute time frames to find key levels and zones where price MIGHT consolidate or bounce due to finding a pool of liquidity that can offer some resistance in the direction it has been moving in, or to keep it more simple, to find support and resistance zones. So in that sense I am taking note of candlesticks and their patterns on all the major time frames. However, my trading plan aims to exploit price movements on the 5M and 1M time frames so this is where I do the majority of my candlestick readings.

The difference between me and other traders is that I don't trade candlesticks just based on the patterns the books tell you to trade them on. In fact, I don't even know the names to these candlestick patterns without having to look them up. In that sense, I don't note the candlestick patterns at all. What I do look at is the story behind these candlesticks, the price action. My trades aren't just based on the candlesticks alone, but are taken in context with the broader picture of what the candlesticks are showing me is happening in that moment of time. I use the candlesticks printed on my chart and combine it with my knowledge of market micro structure to place trades where I believe that there is a good probability at that level that future orders will come in and push price my way to hit my TP before it hits my SL. The series of candlesticks taken in context with the overall picture is what allows me to "dance with the market," as FTI says. Blindly trading candlesticks just leads to disaster.

In order to make bets based on these candlesticks we must first decipher what these candles mean. Each candlestick printed on the chart is showing you order flow transactions that have been made in the past. So a strong bullish candle means that there were more buyers wanting to buy at that price (market orders) than there was available supply (limit orders). In order to accommodate these excess buyers, price had to move up in order to find more liquidity/limit sells to fill these buyers orders up and complete the transactions. This is what caused that bullish candle to get printed on the charts. Vice versa for bearish candles, and wicks just show an area where price moved to find liquidity, found it, and then the opposite side became more aggressive and caused price to reverse.

So if these candlesticks are showing us buying/selling pressure and the underlying order flow transactions that have occurred, we can combine what the candlesticks are telling us with what we know about market structure and how market participants trade to make some good probability trades. For example, if you were to take a short trade based on a shooting star candlestick pattern anywhere on the chart, you have a 50-50 chance (excluding spread) that it will either go your way or against you. But, if you took a short trade after a shooting star pattern at a resistance level where you know there are traders who want to sell and this shooting star is a pattern showing you that sellers have become more aggressive, you just upped your chances that price will go your way.

Personally, I'm not super huge on candlestick patterns. The reason why they aren't as accurate on lower time frames is because the market doesn't open and close every 5 minutes. The FX markets are a 24/5 market. Price is continuously changing and whatever time frame we pick is the time frame we assign to the market to trade in. That's why the candlestick patterns aren't very representative of what's going on in the market. I don't just trade the market on the 5M time frame or 1M time frame. I trade price in the NOW time frame, meaning what price is doing now. In order to construct what price is doing and where future orders may reside, I map out key levels on all time frames and then use price action to read the underlying order flow of what is currently occurring with my entries and exits BASED on either the 5M or 1M time frames. So say we are watching the 1Hr time frame and price forms a hammer pattern. This should mean price will move higher because price opened, went lower and got rejected and "closed" above 2/3 of that candle, and so should move up. However, it could mean that price was just retracing on a down swing move which just so happened to coincide with the hourly close. Once the next bar prints it could easily blow further down. That's why the CONTEXT is so much more important than the patterns themselves.

Now I have tried to oversimplify all of this, but it's not really easy to explain in a single post and getting the chart experience is key to learning how to exploit the candlestick price action in the right context. I'll try to show an example of my approach to trading vs. someone who trades candlestick patterns only.

A candlestick trader


The candlestick trader identifies the hammer pattern and thinks price is ready to shoot for the stars. Here's what happened next:


Now granted the candlestick pattern wasn't an immediate loser and it is possible to define rules to take advantage of that situation that occurred, but the edge that gives you is a small one because if you take a look on your charts you can find plenty of instances where a hammer pattern ended up being a loser from the start. Here's an example from a little earlier on that same chart:


Now, let me show you how I played the candlesticks today.

Let me note that when I start a trading day I am neither biased long nor short. As an intraday trader, I'm only ready to pick a bias once price shows clues as to where it wants to go. On this particular pair, I noticed we had just bounced off of a resistance zone on the 1Hr time frame. This doesn't mean anything, just helps add to any bias I form. I also noticed that from the open, price was steadily making lower lows as it ate away clusters of liquidity on the downside. This led me to believe that the market depth was CURRENTLY favoring the downside. I decided I was going to look for a good entry to sell and as I am a trader who likes to buy low and sell high, I was going to get in on a pullback. All of this was formed by candlesticks being printed on the chart, yet no candlestick pattern was involved. This is essentially what price action was created to do.

During NY, I noticed we were steadily ranging and I wasn't ready to pull the trigger until finally I saw something that made me feel more confident. Price finally made a new low around 10:45AM EST with strong momentum and in line with my bias, and I identified the area it dropped from as a supply zone. I had a limit order waiting at the bottom of the zone minus the spread, stop right above the high of the zone. 1:2 R/R. Btw you can ignore the lines on the chart as they played no role in this trade.


Price just hit the bottom of the zone and I barely got in. About 0.2 pips against me and in no time making 2x my risk with almost zero draw down. I have to admit even I was surprised how beautifully that worked out. Now I obviously don't win every trade and very rarely do I have really low draw downs before my take profit gets hit, if it gets hit, but my strategy performs really well with 1:1-1:2 R/R. Enough to make me money. This trade could of easily gone against me as order flow can change in a split second, but I know this is a probabilities game and I have an edge. Also notice how selective I am on my trades. I could of easily missed this trade if it happened to bounce away right below my entry. Instead of jumping in at market, I'd move on to the next setup and ignore this. Don't chase entries because you feel the need to be in the market. Wait for the perfect scenario to occur and then jump on it like a predator does. I can watch a currency pair all day and still make no trade because it didn't get to a level I wanted to enter at or because it wasn't doing something I wanted to see. This allows me to get pretty high probabilities even with 1:1-1:2.

So I was using candlesticks in that whole process, yet I didn't even look for any candlestick pattern. I was using the series of candlesticks to read the story and look for clues for which direction price is more likely to go and then for an entry on a pullback where I expect other traders will have orders to sell at wholesale. This is how I trade the candlesticks and this can work on any time frame as long as you know what order flow generators and market dynamics are going to play a role in that time frame and how you set your risk management and trade management parameters.

TLDR: There's a lot more to reading candlesticks than just looking at the patterns they make. The candlesticks are telling you the story of what has happened on an order flow and micro structure scale and it is up to you to set up high probability trades based on what has happened and what could happen next.

PS - I also want to add that a lot of people don't like trading low time frames because of "noise", but even in noise patterns can be found. That noise is printed on the charts because of the same reason bars get printed on higher time frame charts, which is order flow interaction with liquidity. Now lower time frames do have more choppy and whipsawy action than higher time frames which most people want to avoid and therefore it could be beneficial to trade higher time frame charts because random commercial order flow isn't playing a huge role. The benefit of the lower time frame is that you're more closer to price action and order flow in the NOW and random events can't make your winning trade turn into a loser. As more time passes by, things like news and other order flow generators begin playing a larger role and could affect the outcome of your trade. And these series of intraday movements are what makes your higher time frame traders a winner or loser. In reality, you can be profitable trading any time frame if you know what you are doing. There are so many ways to skin the cat in this game it's mindblowing.

By default, most of the traders base their decisions on H4 or D1. Of course, this is very subjective thing and strictly depends on personal preferences. This has the potential to evolve in a very lengthy and interesting discussion and I will definitely keep an eye on it.

I wish candlesticks would have a countdown on them. It would be good to know when the candlestick is coming to an end so you can gauge what is likely to be recorded on the stock chart.

Does anyone have any trading software that has this function? As to me, it should be standard

I mostly use H4 and D1. However, I am more than willing to use all other time frames if I see a good signal on them, even the montly one

When I started, I always use to go for lower timeframes like 15/30 minutes, as I felt they were better but as time went on and the more experience I got. I figured out, it is far beneficial to go with longer ones like 4h or daily and since last 1 year, I have been using daily charts only and it has given me fair amount of profits. However, I will always maintain that reality is fundamental analysis is the boss, if you got that than anything else matters!

When price reaches my decision point, I usually scale down to 15 or 5 minutes to make decisions

weekly daily h4

To analyze & decisions making, W1, D1 & H4

For entry, M15, then follow M30 & H1.

Main charts: H4, D1
But I always consider the information from Weekly and Monthly charts.

If you trade at a price point it makes no difference but for traders who incorporate candle/visual analysis into their trading, it is important to know that only the 1 hour and below should look the same on every broker. Time frames above 1 hour will vary visually around the world due to broker time shifts. Ie: using different close times ...NY...Lon etc

Thats not true surely?

D1 for Trend Direction.

H4 for my Entry.



Happy trading,
Yomi

If you say so mate. Would love to hear your explanation ?

I always like to experiment different timeframes, as demo is free so we can easily do it there. However, I always have clear concept when I operate on real which is longer timeframe, but with demo, I try every timeframe. I think if you want to be successful then you got to be like a mad scientist out there experimenting different things, it could really make things enjoyable. But we got to do it till demo only not on the real where you got to be 100% certain.