Candlestick charting patterns for stock trading?

traderindie79

Newbie
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I am learning candlestick charting patterns for short-term stock trading right now. I would like to know what you guys think about it. Is it a good parameter for technical analysis? Do you recommend what resource to learn about candlestick charting patterns? Thanks.
 

tomorton

Legendary member
7,469 1,011
Candlesticks are a very helpful resource for short term trading.

Titles by Steve Nison first set out the majority of patterns but other writers have since then produced good guides.

Have a look at Thomas Bulkowski's research work and website at http://thepatternsite.com/index.html: he has taken the major patterns and added some of his own uncovered by backtesting but also quantifies which patterns work best statistically.

Additional patterns have been built up by people such as Alan Farley etc.
 

timsk

Legendary member
7,088 1,882
I am learning candlestick charting patterns for short-term stock trading right now. I would like to know what you guys think about it. Is it a good parameter for technical analysis? Do you recommend what resource to learn about candlestick charting patterns? Thanks.
Hi traderindie79,
Welcome to T2W.

If you're new to trading and new to Technical Analysis (TA), then I would advise against delving too deeply into candlestick charting patterns. IMO, they are much more likely to mislead (the novice) than they are to enlighten. The reason for this is that they are time dependent and, consequently, largely illusory. Candlestick patterns are simply snapshots in time taken at regular intervals (e.g. 1 minute, 30 minute or 4 hours etc.,) of which the market itself is unaware and to which it attaches no importance. To illustrate this, take a 15 minute interval. Instead of plotting each candlestick on the hour and at 15, 30 and 45 minutes past the hour, imagine it plotted one minute past the hour and, thereafter,16 minutes, 31 and 46 minutes past the hour. It's still a 15 minute interval, but the resulting chart will likely look very different. The patterns that appear on the 'normal' 15 minute chart would change, disappear or, even, be replaced by conflicting patterns. The only significant time to the market is the day open and the day close; everything in between is pretty much meaningless. This applies primarily to the equities market. If you're trading a 24 hour market such as forex, then even the significance of a daily time frame is questionable.

My recommendation would be to start off with a simple line chart if you particularly want to stick to time based intervals. Better still, take time out of the equation altogether and look at pure price action in the form of a Point & Figure (PnF) chart. If that's too hardcore for you, try a Renko chart as this has similar characteristics as PnF whilst retaining a sort of candlestick appearance.
Tim.
 
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Hi traderindie79,
Welcome to T2W.

If you're new to trading and new to Technical Analysis (TA), then I would advise against delving too deeply into candlestick charting patterns. IMO, they are much more likely to mislead (the novice) than they are to enlighten. The reason for this is that they are time dependent and, consequently, largely illusory. Candlestick patterns are simply snapshots in time taken at regular intervals (e.g. 1 minute, 30 minute or 4 hours etc.,) of which the market itself is unaware and to which it attaches no importance. To illustrate this, take a 15 minute interval. Instead of plotting each candlestick on the hour and at 15, 30 and 45 minutes past the hour, imagine it plotted one minute past the hour and, thereafter,16 minutes, 31 and 46 minutes past the hour. It's still a 15 minute interval, but the resulting chart will likely look very different. The patterns that appear on the 'normal' 15 minute chart would change, disappear or, even, be replaced by conflicting patterns. The only significant time to the market is the day open and the day close; everything in between is pretty much meaningless. This applies primarily to the equities market. If you're trading a 24 hour market such as forex, then even the significance of a daily time frame is questionable.

My recommendation would be to start off with a simple line chart if you particularly want to stick to time based intervals. Better still, take time out of the equation altogether and look at pure price action in the form of a Point & Figure (PnF) chart. If that's too hardcore for you, try a Renko chart as this has similar characteristics as PnF whilst retaining a sort of candlestick appearance.
Tim.
Great advice here..a candlestick just represents the flow of price in that one moment of time, rather than as a continuous flow of activity. far better entry criteria when able to look at the market as a whole, rather than what happened that one hour, or day or any other time interval chosen
 

tomorton

Legendary member
7,469 1,011
I am learning candlestick charting patterns for short-term stock trading right now. I would like to know what you guys think about it. Is it a good parameter for technical analysis? Do you recommend what resource to learn about candlestick charting patterns? Thanks.

Tim has highlighted what might be my mistake - I assumed that by short-term you meant the same as what I mean by short-term, i.e. 1-10 days, as in swing trading. I may have been wrong about that.

If you're looking at trading intra-day, yes, candlestick patterns will have very limited relevance. If you're going to use daily candlesticks for trading beyond one single session, especially if specifically for stocks (which unlike forex have a defined closing time and closed period), daily candlesticks (and some would say 4 hourly candlesticks) can be essential tools.
 

dbphoenix

Legendary member
6,952 1,244
If you're going to use daily candlesticks for trading beyond one single session, especially if specifically for stocks (which unlike forex have a defined closing time and closed period), daily candlesticks (and some would say 4 hourly candlesticks) can be essential tools.
Though one could argue that they're not essential at all. Or even useful. Even misleading. Candles have the same open, the same high, the same low, the same close. All they do is illustrate the day's/week's/month's movement in a different way. Whether or not that difference matters will depend on what the trader is looking for. If he doesn't know what he's looking for, the means of illustration is largely irrelevant.

Db
 

tomorton

Legendary member
7,469 1,011
Though one could argue that they're not essential at all. Or even useful. Even misleading. Candles have the same open, the same high, the same low, the same close. All they do is illustrate the day's/week's/month's movement in a different way. Whether or not that difference matters will depend on what the trader is looking for. If he doesn't know what he's looking for, the means of illustration is largely irrelevant.

Db

Certainly true, an EOD candlestick is just a snapshot that summarises a day's activity. Useful as they are, they're not the real thing, only a summary or reflection. But they do help a range of different instruments to be rapidly compared and filtered. There isn't time to watch everything happening in the time it takes to occur in every market, but candlesticks at least allow the potentially right market for your purpose to be identified - then it should be examined in more detail. I don't (any longer) hold that a simple 2 or 3 day candlestick pattern is a complete trading strategy in its own right.
 

traderindie79

Newbie
8 0
As I thought, I need to read more about technical analysis for day trading for stock. I am already reading a book about tech analysis for stock trading. That is why I am asking about candlestick charting patterns. Looks like candlestick charting patterns are not good for day trading for stock? I still need to learn about other parameters. Thanks for you guys opinions.
 

timsk

Legendary member
7,088 1,882
. . . If that's too hardcore for you, try a Renko chart as this has similar characteristics as PnF whilst retaining a sort of candlestick appearance.
Tim.
Candle_Renko_Comparison.png

As a picture speaks a 1,000 words, here's a 5 minute candlestick chart and a Renko chart in which each 'brick' is 2.5 points. I maintain that for the novice trader the Renko chart is cleaner and, therefore, easier to 'read' as the trader doesn't get caught up trying to decipher the 'meaning' - assuming there is any - of each candlestick or combination of candlesticks. Having said that, I accept fully that some experienced traders will argue that the candlestick chart is more granular and contains important details that don't exist on the Renko chart.
Tim.
 

dbphoenix

Legendary member
6,952 1,244
Whether or not something is easy or easier to read will depend on the language and whether or not the reader is familiar with it. The change in stride is the same in both charts as is the entry for the short. Doesn't really matter whether it's Renko or not, or even if it's candles at all.

Db
 

timsk

Legendary member
7,088 1,882
Whether or not something is easy or easier to read will depend on the language and whether or not the reader is familiar with it. The change in stride is the same in both charts as is the entry for the short. Doesn't really matter whether it's Renko or not, or even if it's candles at all.
Agreed dbp but, for the novice trader who isn't yet familiar with any language then, IMO, the Renko chart is nominally easier in as much as it removes a layer of detail which may result in him pursuing red herrings and going down cul-de-sacs etc.
 

tar

Legendary member
10,441 1,313
I am learning candlestick charting patterns for short-term stock trading right now. I would like to know what you guys think about it. Is it a good parameter for technical analysis? Do you recommend what resource to learn about candlestick charting patterns? Thanks.
You will know the answer after 10k hours of learning.


GL
 

dbphoenix

Legendary member
6,952 1,244
Agreed dbp but, for the novice trader who isn't yet familiar with any language then, IMO, the Renko chart is nominally easier in as much as it removes a layer of detail which may result in him pursuing red herrings and going down cul-de-sacs etc.
Red herrings, cul-de-sacs, and blind alleys are a common problem, one of the reasons why most beginners spend/waste so much time learning how to trade (if they ever do).

But if one wants to cut to the chase, plot a line chart, preferably a hi/lo-avg. If the trader then determines that he cares about the high/low/close, he can then choose from a variety of illustrative alternatives.

Or one can simply watch a T&S display for a while and get an object lesson in the irrelevance of the bar (or candle).

Db
 

tar

Legendary member
10,441 1,313
A line chart is just another form of a candle chart , same goes for any type of charts ...
 

tar

Legendary member
10,441 1,313
Or one can simply watch a T&S display for a while and get an object lesson in the irrelevance of the bar (or candle).

Db
And the irrelevance of a line chart or any type of chart for that matter .

Its all relative ...
 

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