Daily Candlestick Triggers

[walterw 10]

Mr Paul I would like to learn how I can take does global numbers and from where..... thanks Walter.

[Soultrader 12]

Soul - TS does have this feature, they call them Share Bars.

 

And as mentioned, I am NOT using equivolume candles. Those just look funny to me!

 

Thanks brownsfan. I started using a 1500v chart but still need my handy 5min chart next to it.

 

Also, Paul excellent post. How do you usually check the average volume. Through your charts? Or do you get the data from the cme? Thanks

[Anonymous 11]

Bullish Dark Hammer

 

Here is a bullish dark hammer formation that formed on the Euro. This is a 5 min chart. What can't be seen here is that on the 15 min. at the same time a bullish white hammer pattern formed. Hence there would be two ways to get into the market.

 

For taking profits at WRBs, it would make sense to move up the 15 min chart after the Pt1.

 

Also note that this pattern requires certain price action after the hammer and not just prior to it.

 

* we want to see a white WRB that engulfs the dark hammer line and is less than or equal to the high of the highest high of the 3 intervals prior.

[Anonymous 11]

While I planned only to create a post when there was a valid Candle signal for the day I wanted to make this post about when not to trade. Even if there is a valid candlestick trigger, there are instances where it is better to stand aside. Or better yet maybe we should get down to defining what a valid Candle signal is?...

 

 

There are many sub-groups of candle patterns. Some reliable some not so much.

 

Here is a picture for Brownsfan019: remember this discussion ?

 

Note that we have a valid Bullish White Hammer pattern form on the 5 minute chart.

 

Now, most people would want to place their stop at the low of the candle or just a pip or two below that. That area creates the "Logical Stop Area". The problem is, while the area is logical, it is also a prime target for the Big Boys to hunt stops.

 

Hence placing one's stop just below the low of the hammer line is not the ideal place to put it. Unless it also coincides with some other strong support area. Like WRB or Value Area Pivot for example.

 

In this case, BF we see our dilemma: do we exit or do we wait until our stop gets hit to prove us wrong? There is yet another option that we did not touch on; A contingency plan that would tell us to stop and reverse. Said plan would not necessarily need to be triggered by our initial stop being hit, rather by changed conditions in the Price Action itself.

 

At any rate, the key here is that we should be careful of placing our stops in the obvious (logical) places in terms of Candle Patterns.

 

P.S. Everything here comes from Mark's(NA) thread on elitetrader.com

[MrPaul 10]

Mr Paul I would like to learn how I can take does global numbers and from where..... thanks Walter.

 

Thanks brownsfan. I started using a 1500v chart but still need my handy 5min chart next to it.

 

Also, Paul excellent post. How do you usually check the average volume. Through your charts? Or do you get the data from the cme? Thanks

 

I get the numbers through Interactive Brokers

[brownsfan019 17]

While I planned only to create a post when there was a valid Candle signal for the day I wanted to make this post about when not to trade. Even if there is a valid candlestick trigger, there are instances where it is better to stand aside. Or better yet maybe we should get down to defining what a valid Candle signal is?...

 

Ahhh... perhaps the best statement throughout this entire thread... what exactly is a 'valid' candle signal?

 

Having trading candles for awhile now, here is my definition of them being used in the traditional candlestick analysis - first, you must have a clearly defined trend. Why? Traditional candlestick analysis is meant to signify the possible end of a trend. Can't end a trend if you do not have one.

 

Step One: Be able to clearly define trend.

 

Once you've established a trend, then it's a matter of seeing a valid candlestick pattern/formation and then implementing your entry/stop technique. I say that b/c I've read many different views on how to enter a trade once you see a candle setup. Let's say for example you get a hammer. Some would say as soon as you see a hammer, enter a market order to go long. Some would say that you want price to rise above the high of the hammer and then enter. Some would say wait for price to retrace to somewhere in the body of the hammer and then enter. So, it's a matter of trader preference on where to enter and where to place the stop.

 

I attached a screenshot of a chart from this thread. You see a valid hammer signal, now the question is where and why do you enter? If you wait for a retracement into the hammer body, you may be waiting to long and never enter the trade. If you enter at the top, you need to have a larger stop... See the possible dilemna? You cannot just wing it, you must have written rules before placing any live trades. It's easy to say that you would go long right away on this hammer b/c it did not retrace much, but another hammer pattern could easily test the low of that hammer.

 

Step Two: Implement your entry and stop technique.

 

After that, it's a matter of managing the trade and exits. We've discussed WRB's, trailing stops, set profit targets, etc... Again, a matter of trader preference.

 

Step Three: Manage trade according to your specified rules.

 

------------------

------------------

 

MrPaul - regarding the chart you posted, following my normal trading plan as stated above, I do not believe the first doji you have highlighted is a valid candle signal due to a lack of trend. I personally do not call one up candle an uptrend; therefore I would not consider a trade based on that doji.

 

Your other gravestone doji could be a candle signal. In your example volume is also a filter, so this may not be a valid trade for your setup.

[brownsfan019 17]

Here is a picture for Brownsfan019: remember this discussion ?

 

Note that we have a valid Bullish White Hammer pattern form on the 5 minute chart.

 

Now, most people would want to place their stop at the low of the candle or just a pip or two below that. That area creates the "Logical Stop Area". The problem is, while the area is logical, it is also a prime target for the Big Boys to hunt stops.

 

Hence placing one's stop just below the low of the hammer line is not the ideal place to put it. Unless it also coincides with some other strong support area. Like WRB or Value Area Pivot for example.

 

In this case, BF we see our dilemma: do we exit or do we wait until our stop gets hit to prove us wrong? There is yet another option that we did not touch on; A contingency plan that would tell us to stop and reverse. Said plan would not necessarily need to be triggered by our initial stop being hit, rather by changed conditions in the Price Action itself.

 

At any rate, the key here is that we should be careful of placing our stops in the obvious (logical) places in terms of Candle Patterns.

 

P.S. Everything here comes from Mark's(NA) thread on elitetrader.com

 

Pivot - here's my take on this particular chart - I place my stops at the 'logical' area. Why? B/c if that hammer low is broken, that hammer is no longer a valid trade in my opinion. The question then becomes how much lower do you go to place your stop away from the logical area? If today 5 ticks works, tomorrow it will fail. So then you bump it to 6, then 7... We've all been there.

 

The other consideration is how big of a stop are you willing to stomach? I love hammers, but also know that some can result in very large stops (at least for me). A smaller chart timeframe will normally fix this, which is why I probably trade on smaller VBC's (Volume Based Candles).

 

See my attachment for what I see...

 

1) Valid hammer that looks to have a large stop. It may have delivered a profit target depending on what you use to exit.

 

2) An even better hammer than the first - smaller stop needed, a better 'looking' hammer (nice clean line with a textbook looking hammer). The end result was no threat to your logical stop whatsoever.

 

So I see 2 trades here with one that did not produce much and one that delivered nicely.

[walterw 10]

A small curious question to Pivot, do you still look at vsa ? that chart there at that "logic stop" doesnt look like a nice retest on smaller volume ? cheers Walter.

[Anonymous 11]

See my attachment for what I see...

 

1) Valid hammer that looks to have a large stop. It may have delivered a profit target depending on what you use to exit.

 

The Logical Stop Area shown is actually 2 pips below the low of the White Hammer Line's Low. In a sense it looks larger than actually is.

 

I am sure you see that the Pt1 was hit. If multiple contracts are used, one wants to wait for the subsequent Pts to be higher than Pt1.

 

2) An even better hammer than the first - smaller stop needed, a better 'looking' hammer (nice clean line with a textbook looking hammer). The end result was no threat to your logical stop whatsoever.

 

I am looking for a particular reliable sub-group of Hammer Patterns, not hammer lines. I do not think hammer lines, or any single candlestick, makes for a good signal. So while that is a dark hammer , it is not one that I would be looking at.

 

Having said that, Note the large dark WRB. Note how the WRB does not trade lower than the low of the White hammer line in the valid pattern. This is key.

 

Remember, Candle patterns are a secondary method in this context. The primary method is WRB analysis.

 

Japanese Candlestick Patterns are dependant on Wide Range Body analysis. WRB analysis, however, is independent of Japanese Candlesticks.

 

So I see 2 trades here with one that did not produce much and one that delivered nicely.

 

So I see 1 trade with some slight negative action in terms of a move lower than the low of the Hammer Line. Yet within the negative action there is positive price action confirmation through WRB analysis.

 

I also see a nice dark hammer line, but not a valid bullish dark hammer pattern via the sub-group I am looking at.

 

Now if one gets to the ultimate level, at least for me, I do think understanding the supply/demand dynamics would change things in such a way that the dark hammer line would be another entry.

 

That is, one would be trading Price Action only, not the various hammer lines or patterns themselves.

[brownsfan019 17]

Pivot - I understand that your 'version' of candlestick trading is different than mine, I was simply pointing out what I saw. For those reading the thread, they can get a couple different points of view.

 

Question though - would you have honestly held onto that first hammer through all the 'retracement'? It would take some guts to buy on the hammer with a fairly large stop, watch it retrace past the low of that hammer and then watch it go up.

 

You are right that a candle by itself is not a valid signal, but in traditional candlestick analysis (what most will be starting with) that 2nd hammer is a beautiful setup.

 

We should make it clear here that your analysis is based on work by Mark Perry (seen at elitetrader.com) and my analysis is more the 'traditional' candlestick analysis taught by Steve Nison. This is not to say that one way is better than the other, I just want to make it clear for those reading this thread wondering why we have different views and are looking at the same chart in the 'candlestick' thread. For me, candlesticks are primary and WRB's may be used in conjunction with them.

 

With that being said, I am new to WRB's and learning more about them daily! Hopefully Mark will post in this forum and head shed some light on them for us!

[Anonymous 11]

Things to consider:

 

* The low of the white hammer line is at an even number. It is best not to place your stop at an even number. The low of where price traded in the logical stop area, is also an even number. Hence a fixed stop (not the recommend type of stop) would want to be on an odd number and certainly placed like 1, 3 or 5 pips away. Note that an even number minus an odd will give you an odd number.

 

* In this case the low was at around xxxx4 (example). Now we also would not want to place our stop at a round number-number ending in zero. More reason that our stop should be LOWER than the "logical stop area".

 

* Market stops are better than fixed money management stops. Problems arise, however, when market based stops are further away than one's account size can tolerate. Note this is a personal problem and shows why trading can be so difficult. That is, the correct thing to do does not seem prudent. When in reality, the prudent thing to do is not to be undercapitalized in the first place.

 

* As you know, this represents a Paradigm shift for me. In this method, three options are considered PRIOR to the trade entry.

 

1. If wrong, the market will stop out the position.

 

2. If the market moves against you and creates a CONTINGENCY signal a reversal of position will be undertaken. i.e. Sell twice as much as the original buy to get net short due to the current price action.

 

3. Price action may determine that the current trade is not optimal, yet a trade to the opposite side (contingency trade) is also not warranted. In this case, wait for the stop to be hit. And this is the one that gets me, because if the current Price Action says the trade is no longer valid, and a trade in the opposite direction is also not valid, why would one want to be in the market at all?

 

* Volatility has to be taken into account. Would you really place a stop just below the hammer, which is within the "noise range" of the market? Clearly, when they "work" a stop just below the hammer makes sense and is the best. However, it is possible for the random noise of a market to go back down and test that area. Not to mention blatant stop hunting.

 

* I also have to overcome my desire to let the market take me where it wants to go. That is sitting tight. Mark uses WRBs for profit targets as they represent various supply/demand dynamics. I still like the idea of being right and sitting tight. Not exiting a position with a profit. Just moving my stop until the market takes me out.

 

* Brownsfan is correct: one must understand the underlying trend. Candle signals tend to fall into the trend reversal or trend continuation camp. They therefore should not be used to counter trend trade nor congestion range trade. The sub-group that I am looking at are either reversal or continuation.

[Soultrader 12]

Here is an interesting setup I took on the YM today.

 

The doji appears right at R1 (green line). The next bar closes below the doji hence the trigger. The risk:reward is excellent. I was risking 10 points with a stop above the high of the doji. Price then declines to VAH (red line).

 

This was a premarket setup using a 15 minute timeframe.