Big Candle Observation

corei · May 16, 2009

Based on my simple observation, a big green/red candle is usually followed by series of other green/red candles. Occurence of big green/red candle usually set panic/greed to retail traders and alert momentum traders to get in. Is my observation correct? (please correct me if I am wrong)

Based on this fact, I am going to create a script/program that will calculate the average size/range of all candles during the trading day. The purpose is to correctly determine the size of what people perceived as a big candle during that particular trading day.

But before putting some effort, I would like to know if there is readily available software/indicator for this purpose. I don't want to waste my time only to find out that there is readily software/indicator out there for that purpose.

Thx a million!

tomorton · May 16, 2009

Your observation is usually correct but I suspect this single pattern is too simple a basis for a profitable trading system.

You should obtain Japanese Candlestick Charting Techniques by Steve Nison, then look back over many many trading days on your chosen market(s) before you put much money at risk. Then get his follow-up Beyond Candlesticks. Trading from candlestick patterns generally will not be profitable from the assessment of a single candle in isolation.

TheBramble · May 16, 2009

corei, set your charting option to show price as a line rather than candles. Same price - same action.

Where's the candle?

Any timeframe is an arbitrary choice we traders make – it has no absolute reality.

What you have observed is that if the price is going in one direction with momentum (big candle on whatever timeframe you’ve chosen) it will likely continue to do so. That you’re on 5min or 15min charts is irrelevant. The price will go up/down for as many minutes as it likes with varying degrees of energy. That’s what you’re seeing – pure price action chopped up into discrete chunks that have no relevance in and of themselves.

Do your ‘average range of candles during the day’ calculation on a 5min, then a 15min then a 1 hour chart. Your results should show you it is a meaningless endeavour.

Especially as you have already captured the essence of what it’s all about without perhaps realising it.

corei · May 16, 2009

I am using 1 minute time frame and talking about huge candle that is 4-5 times bigger than the size of average normal candles, isn't this indicate that there are buying/dumping by instituionals or big traders? Ofcourse I maybe wrong. comments please

jiggly · May 16, 2009

further your observations and do some work.

you have noticed these 'wide' spread candles and you want to know what exactly?, if it continues to go up? does it tend to go up? if people are selling into them and they go down, if they are green? will it tend to move sideways?.

look at the next bar/s after the one you are hypothesising over and get the answer for yourself,

get many instances where you have noticed these wide 'spread' candles and find out what usually happens afterwards.

however you cant look at these candles in isolation, these occuring on their own have little relevance to what has happened before, and where abouts they are forming in relation to the bigger picture.

jiggly · May 16, 2009

corei said:
.

But before putting some effort, I would like to know if there is readily available software/indicator for this purpose. I don't want to waste my time only to find out that there is readily software/indicator out there for that purpose.

Thx a million!

ATR (average true range) you can set this to calculate the average range of 'x' amount of bars.

is a very common indicator and will very usually come with any charting software as standard.

TheDuder_69 · Aug 22, 2009

Interesting, but I take it few steps further

Basically, I use the 'Big Candle' theory where Corei is talking about. I am using Candle Sticks with heikin ashi technique, 5min. But apart from this, also Stoch 30min, Volume chart (10000) and ema's. (btw, I paper-trade Emini's). Only enter when stoch is in my favor and volume is rocketing.

So on the 5min chart you will see price action, and on the volume chart....well... hmm..basically the same

.... but within a trading range of 10000 contracts. I am still doing testing and tweaking, but would like to know other traders opinion about this strategy. As it seems like a extension of Corei's idea.

Any input is welcome.

thanks,
the dude

Splitlink · Aug 22, 2009

jiggly said:
ATR (average true range) you can set this to calculate the average range of 'x' amount of bars.

is a very common indicator and will very usually come with any charting software as standard.

Average range can be a dangerous figure. How many bars would you consider for ATR?
I use bars to get my idea of volatility but am inclined to use the larger range bars as my guide. After all, "average" ,means half are below but the other half are above. That is a risk I try to reduce.

Charlton · Aug 22, 2009

The kind of analysis that you are doing is part of the analysis technique called Volume Spread Analysis or VSA for short.

This attempts to look at the relationship between volume, price spread (big candles vs small candles) and price direction ( how the candles relate to each other).

It then seeks to determine from these measurements the balance of demand/supply and the actions of smart money vs weak hands.

This way of analysing charts was particularly espoused by Tom Williams who wrote a book called "The undeclared secrets that drive the stock market". It is difficult to get hold of now. It is also full of typographical errors that make it difficult to follow.

The book was rewritten under the title "Master the Markets", when the methods were incorporated into software produced by Tradeguider. This software has generally been savaged by supporters of VSA.

Some aspects of VSA, particularly the analysis of volume, have become less useful over time because large transactions can be chopped up into smaller chunks that make the correlation between price, volume and spread less direct.

There is also a danger that over-analysis occurs whereby too much significance is read into each bar, especially in hindsight analysis, but as a general commentary on price action I think it is ok.

So with lots of caveats in mind, it is probably a useful method for newbies to take a look at, simply because it focuses on price action and buying/selling pressure.

Not a lot of discussion of VSA takes place on this forum, but there is a whole section dedicated to it over on Traders Laboratory, alternatively google "Volume Spread Analysis"

Charlton

2be · Aug 22, 2009

Charlton said:
The kind of analysis that you are doing is part of the analysis technique called Volume Spread Analysis or VSA for short.

This attempts to look at the relationship between volume, price spread (big candles vs small candles) and price direction ( how the candles relate to each other).

It then seeks to determine from these measurements the balance of demand/supply and the actions of smart money vs weak hands.

This way of analysing charts was particularly espoused by Tom Williams who wrote a book called "The undeclared secrets that drive the stock market". It is difficult to get hold of now. It is also full of typographical errors that make it difficult to follow.

The book was rewritten under the title "Master the Markets", when the methods were incorporated into software produced by Tradeguider. This software has generally been savaged by supporters of VSA.

Some aspects of VSA, particularly the analysis of volume, have become less useful over time because large transactions can be chopped up into smaller chunks that make the correlation between price, volume and spread less direct.

There is also a danger that over-analysis occurs whereby too much significance is read into each bar, especially in hindsight analysis, but as a general commentary on price action I think it is ok.

So with lots of caveats in mind, it is probably a useful method for newbies to take a look at, simply because it focuses on price action and buying/selling pressure.

Not a lot of discussion of VSA takes place on this forum, but there is a whole section dedicated to it over on Traders Laboratory, alternatively google "Volume Spread Analysis"

Charlton

VSA has its uses, as a part on the market analysis. One of the best VSA setup is what DiNapoli calls "squat", which is a doji with a high volume. When such doji happens in the area of fib confluence in the are of S/R. With VSA one has to establish the reliability of the Vol data feed, as different MM post only their own levels of transactions achieved within their trading platform. DMA firms in that respect are better, as they reflect the wider market condition. VSA is a concept well deserving a serious study. For many decades many profitable traders have benn using insights gained by observing volume . Tha basis of VSA are simple and very rational.
I like to use VSA alonside other valuable approaches, and do not claim to be a "pure VSA trader". Actually, there is a desire of some traders to trade exclusively just one approach, and VSA is one of them. While for some such "purist" approach works well, I find that I am happy to trade with several filters and be purist in taking good profits.
Have a great weekend everybody.

mrsoul · Aug 22, 2009

corei said:
Based on my simple observation, a big green/red candle is usually followed by series of other green/red candles. Occurence of big green/red candle usually set panic/greed to retail traders and alert momentum traders to get in. Is my observation correct? (please correct me if I am wrong)

Based on this fact, I am going to create a script/program that will calculate the average size/range of all candles during the trading day. The purpose is to correctly determine the size of what people perceived as a big candle during that particular trading day.

But before putting some effort, I would like to know if there is readily available software/indicator for this purpose. I don't want to waste my time only to find out that there is readily software/indicator out there for that purpose.

Thx a million!

Just from eyeballing the charts, the "big candle" looks like a set-up that works only 50% of the time on the 5 min. chart, making it very difficult to make money.
However, the "big candle" looks much more promising on the 30 min. chart.
The only problem is that you have to wait a long time for the "big candle" to set-up on the 30 min. chart.
You might have to wait a day for it to set-up but it is probably worth doing if you see it set-up.

Big Candle Observation

corei

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tomorton

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TheBramble

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corei

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jiggly

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jiggly

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TheDuder_69

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Splitlink

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Charlton

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2be

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mrsoul

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