Candlestick analysis and different timeframes

[brownsfan019 17]

To continue some of our discussions on candlestick analysis, I wanted to talk about candlestick analysis on different timeframes. By nature, I am currently a daytrader using as low as 2000 VBC's on the ES, but there's MANY ways to apply candlestick analysis on different timeframes.

 

There's some arguments that I've read that candlestick analysis loses it's touch the lower the timeframe you go. And on the surface of that argument, I'd probably agree. As with anything though, you sometimes need to dig deeper than what meets the eye...

 

I hope to make this thread an ongoing look at candlesticks on many different timeframes and chart setups so that we can look at a variety of approaches...

 

30 MIN ES CHART

 

I start with a 30 minute ES chart b/c that is a chart that performing candlestick analysis on easy b/c you literally have at least 30 minutes to gear up for a trade.

 

 

 

That chart is from Wed, 8/29. So my question is... what candlestick patterns appear and how did they play out?

 

 

 

15 MIN ES CHART

 

Here's a 15 min of the same day. How does the picture change, if at all, by going to a timeframe that produces twice as many candles as the 30? Is that good or bad?

 

 

 

 

5 MIN ES CHART

 

And the 5 minute...

 

 

============================================

 

I'll leave it at that for tonight.

 

What I hope you can see is that once you train your eyes to look for the candlestick patterns, the question then becomes on what timeframe and chart setup? And why?

 

There's no right answer as each of us has different risk tolerances and expectations of each trade. For example, if you trade the 5 minute with a reasonable profit target, I think you could make money. I also think that if you go for a 'reasonable' target on the 30 minute as you did with the 5 that you will probably lose money in the end. But then I would argue that the 30 minute trades *could* be a stronger trade than the 5...

 

Feel like this?

:crap:

 

This is why trading is hard and why I believe candlesticks are so misunderstood and misused. Just taking a hammer is only one small sliver of the puzzle. All hammers are not created equal. You not only have to recognize the patterns, you have to figure out how you will use it, and after all that, see if your conditions to enter a trade are even met to begin with! Oh yeah, and then manage the trade. :doh:

 

Now, before I scare newbies to candles off, keep this in mind - once you get your system flowing, all of those steps just happen. They become inherent in your trading and you just do it. It's a matter of if/when you get there. It takes time and A LOT of practice. But when you are there, it can be very rewarding in my opinion. :applaud:

[Nick1984 10]

Ok I'll give this a shot but I'm a candlestick noob so bear with me.

 

On the 30m chart the signals are not that strong imo. What I notice is that the volume on the blue candles starts to rise slowly after the 3 red candles. Of course we're all geniuses in retrospect so I'll try to play this as if I didn't know what was coming up. The first 3 blue candles don't do anything for me, especially the 3rd blue candle. Volume is going up but the 3rd blue candle has a long wick at the top. If I saw this I'd assume with the increasing volume that we'd be coming to a top just above the previous high from a few candles back. However with the next big blue candle I would have seen a great long as thats a very bullish candle on even bigger volume. I would have entered that at the close with a market order trying to squeese out a few points, with a stop placed at the close of the previous candle.

 

The 15 minute chart looks nicer to me. 3 candles after the gap up there is a candle that has a really long wick (i have no idea about names of candles so be kind when you judge me here). Seeing as there was a gap up, that candle is a short signal to me and I would be looking to go for a gap fill with a stop at the high of the candle. The gap fill doesnt occur but I would have scaled out most of my position by the time the low on the 2nd red candle occurs so the last part of my position would have been stopped out at break even. That being said, once I stopped out I would have quickly gone long again on the hammer candle at 10:30 (I think thats a hammer but again I don't know terminology here) with a stop being placed at the most recent low. Scaling out I would have stayed in that trade after 2 red candles had formed.

 

At 13:45 theres another similar candle that would have been the same play with a stop being placed at the bottom of the candle. That one would have turned out well as well.

 

On the 5 minute chart there is a really strong bullish candle at 9:30 which I would have gone long on at the close but that would have been a scratch trade being stopped out. The 3rd red candle after that confuses me cause it looks bullish but it ends up closing lower than the open, I wouldn't trade that one so I probabbly would have missed that down move.

 

At 10:40 there is another strong bullish candle which I would have taken at the close with a stop at the bottom of the candle. After we have a "doji" finishing in the lower range of the candle I would have been worried and 2 more red's after that would have seen me exit the trade. If i had an anchor chart up on the 15 minute time frame the candles are still blue so I probabbly would have stayed in it as the longer term trend is still up.

 

The last trade I would take is at 14:25. For 3 bars we had been stuck in a little channel but then there is a big blue candle that breaks out of that channel and closes above it. Would have entered in the close of that candle and probabbly would have held that to the close.

 

Thats as good as I can do trying to put myself in the position of not knowing whats coming ahead. Hope I passed the test brown!

[brownsfan019 17]

Nick,

That's good work for a candle noob!

 

Let's look at the 30 min chart first:

 

 

 

 

It looks like we had some similar ideas here. This 30 min chart provided 3 possible setups and depending on if your entry criteria was met, you went 2 for 3 or 2 for 2.

 

I like this 30 min chart example b/c it was pretty clean for the most part.

 

 

15 min chart:

 

 

Now, before anyone freaks out there, there's one important thing to keep in mind - while there are a number of possible candle setups, it comes down to if your entry criteria was met in terms of a valid pattern or not. My personal choice on a longer timeframe would be want some sort of confirmation of the pattern before initiating a trade.

 

The 5 min chart would take too long to annotate tonight, so we'll pass on that one for now.

 

But Nick did a good job, esp as a newbie to candles, in spotting some nice possible trade scenarios on the 15 and 30 min charts.

 

So what's the catch, right?

 

The catch is that some days, the 15 and/or 30 just don't have it with the candles. It's easy to spot these days after the fact, but they are the days were not much really took place. It's easy to see on a 1 or 3 minute chart where you see action, but noting really netting much out.

 

Good example - 30 min ES chart from 8-2-07:

 

 

 

You'll see that it was just a tight range most of the day. I see 2 candlestick patterns that both worked, but nothing to get excited about. I guess on a tight range day if you can come out unscathed when using a higher timeframe, you should be happy with that. The difference being that a 1 or 3 minute chart that day could have provided more.

[james_gsx 16]

What exactly do you see in the third highlighted candle? These are the type of setups I usually miss because my eyes aren't adjusted to seeing them as setups. Would it be because of the 3 candles pushing price down, then that would be a reversal candle? Is there any kind of psychology behind the candle I should be aware of?

 

 

And what makes the second highlighted candle bullish?

[TinGull 10]

[TinGull 10]

And that second highlighted candle isn't bullish...it's bearish. That's why brown said that if you took all the signals there, you'd have been 2 for 3, but if you stuck with knowing it was in a short term up trend, and only took bullish signals, you'd have been 2 for 2.

[brownsfan019 17]

What exactly do you see in the third highlighted candle? These are the type of setups I usually miss because my eyes aren't adjusted to seeing them as setups. Would it be because of the 3 candles pushing price down, then that would be a reversal candle? Is there any kind of psychology behind the candle I should be aware of?

 

 

And what makes the second highlighted candle bullish?

 

James,

As Tin said, that is a bearish formation - a shooting star. If you were filled, it failed as a short. Again, depends on if your entry criteria was met.

[brownsfan019 17]

 

Tin,

You should really start a thread about what you've annotated here. I've seen you mention it now and again, but I'd like to see a more formal presentation so I can follow more closely.

[TinGull 10]

What exactly would you like to see more defined?

[brownsfan019 17]

What exactly would you like to see more defined?

 

The 2 bar reversal thing - I think you mentioned it to Abe in one of his thread and I just observed it, didn't really pay attention to it though. I've never seen the '2 bar reversal' before and would like to see how it could play into my analysis here.

[TinGull 10]

http://www.traderslaboratory.com/forums/f34/the-2-bar-reversal-2387.html#post18193

[brownsfan019 17]

Cool, will check it out later. Thanks for sharing.