Dear David,

First, I want to start off by thanking you for creating such a great site which contains a wealth of information only could only imagine to have. Your determination to answer questions is quite great as well because most people with your level of experience don't have time for the average investor.

My question pertains to Japanese Candlesticks. What are things I could use to have confirmation. Should I use Dow theory, other indicators, (if other indicators which ones) or even something else I have not mentioned.

Thank you once again for the great site!!!

Ali

Hello...

First than all.. I apologize to the forum for not being around for a while. Work it's hard and barely have time off these days.

I know you addressed this question to David, but if you don't mind,, I'll be happy to talk about candlesticks.. something I have passion for.

According to the source of Japanese candle sticks, Honorable Mr. Nison. Candle sticks signals give us powerful reversal indicators. And some of the many ways to get confirmations are these:

A reversal signal have more strength by being near a support or resistance line.
Example... A bullish engulfing pattern not far from a support line.

A reversal signal MUST follow after a trend or be at an extreme in a trading range.
Example... A bearish harami in the middle of a box range is not a reversal signal.

If you use oscillators such as RSI, A reversal signal must be at extreme oversold or overbought.
Example... Don't buy or sell when a reversal signal is in a near neutral area

Be sure to verify a time frame below to see behavior of price.
Example... If you use daily charts, make sure to take a look at the 30min charts to see how the candles and indicators are doing over there. You will be more accurate with this.

Good trading dear friend...
There are volumes about candlesticks.. These is just some out of many ways to take juice out of such strong indicators.

-Daniel

Thank you so much for your help Daniel.

What are good books to read to further understand candlesticks? I have read a few of them but I have trouble distinguishing good signals from false signals.

Hi Uahmed,

Glad to hear from you and welcome to the community.

Also thanks to Daniel for his help here which is always appreciated. Steve Nisson's books are probably the most quoted books on candlestick analysis out there as Daniel mentioned, and you can find the links to two of them below:


There is also a great free website on candlestick analysis below:

http://thepatternsite.com/

And lastly don't forget about the candlestick analysis section of my free basics of trading video course which you can find under module 4 and Lance Begg's free candlestick analysis video course.

Hope that helps. If you have any other questions or comments please feel free to post.

Best Regards,
Dave

__________________
Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

i also recommend the nison books, they are great. if you are new to technical analysis, i also recommend john murphy's book, technical analysis of the financial markets. that provides a great introduction to candlesticks and many other technical analysis concepts as well.

Thank you all for your help!!

Hello everyone,

I have read over ten books on technical analysis and watched all of the videos on this site but I feel that I am not getting better. Is there something I should be doing when I am reading??? How can I improve my methods??

Thank you for the help!!

Ali

Hi Uahmed,

This is a good question and I think a problem that many traders who are new to the market have.

My suggestion is to step away from looking at charts and following the market for a couple of days, clear your head, and then when you come back focus on putting together a plan for how you plan to place trades. Often times I find that people get confused because while they are trying to soak up all the information from the books, websites etc that offering education on the markets, they are not doing so in any sort of structured manner.

While this is better than not doing anything at all, information without structure is pretty much useless. The structure that in my opinion a trader should focus on building is a business plan for their trading that outlines what they hope to gain from trading, the type of trading that best fits their unique situation, criteria for entering a trade, criteria for managing a trade, and criteria for exiting a trade. For more information on this see the video below:

The 20 Components of a Successful Trading Plan

Hope that helps. If there are any other questions or comments on this one please feel free to post.

Best Regards,
Dave

__________________
Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

Hello everyone,

Lately I have been reading forums and other sites which give a probability for a candlestick pattern to work.

If anyone could answer this question that would be quite helpful!!!

Where do they come up with these probabilities and how? Is there any study that I could actually see? I am very good at stats so any technical statistical terms will be well understood by me.

Thank you once again!!!

Ali

Ali,

I would be skeptical about fixed probabilities using candlesticks. My immediate questions are what are the time frames studied? Were trading costs factored into the probabilities? Candlesticks used for entries do not necessarily have cousin patterns for exits, so how do you determine if it is successful when the ending is not defined?

Candlestick trading is highly contextual. I focused heavily on candlesticks when I started learning to trade. The first observation is that the candles appear everywhere. The second is that it does not always look like the textbook. It takes a lot of experience to look at a chart and instinctively know which patterns are relevant and which are not.

__________________
Shaun Overton
OneStepRemoved.com
Strategy and Automated Trading Development