'Candlesticks are useless and arbitrary' yeh but no?

[1RISH]

Whilst a lot of traders use candlestick charts, there does seem to be quite a lot of backlash lately towards time-based charts. This is of course quite logical, at first, because , really, why should a daily chart have any more significance than a 23H chart? a H1 chart over a 55M chart?

When using candlesticks, there is no doubt about it, you are slicing time into neat little intervals, say the naysayers, whilst volume-based or trend based bars 'smooth out noise'.

I can see the logic in this argument. The problem is, literally every single broker or charting software starts off with W1 D1 H4 H1 30M 15M 5M, like every time. I get the feeling that there are a hell of a lot more traders looking at where a daily or weekly candlestick closes than a 23hr chart close. In my opinion, then, candlesticks and time-based charts are from quite a basic view, irrelevant, but on the other hand, so many traders use them, and the vast majority of traders using candlesticks seem to focus on a few timeframes.

Not to say that volume or tick bars have no relevance, I think they are brilliant too.

What do you guys think?

 

[piphoe]

my charts our full of candlesticks...they are not useless if you know how to use them.

 

[dbphoenix]

Whilst a lot of traders use candlestick charts, there does seem to be quite a lot of backlash lately towards time-based charts. This is of course quite logical, at first, because , really, why should a daily chart have any more significance than a 23H chart? a H1 chart over a 55M chart?

When using candlesticks, there is no doubt about it, you are slicing time into neat little intervals, say the naysayers, whilst volume-based or trend based bars 'smooth out noise'.

I can see the logic in this argument. The problem is, literally every single broker or charting software starts off with W1 D1 H4 H1 30M 15M 5M, like every time. I get the feeling that there are a hell of a lot more traders looking at where a daily or weekly candlestick closes than a 23hr chart close. In my opinion, then, candlesticks and time-based charts are from quite a basic view, irrelevant, but on the other hand, so many traders use them, and the vast majority of traders using candlesticks seem to focus on a few timeframes.

Not to say that volume or tick bars have no relevance, I think they are brilliant too.

What do you guys think?

Depends on how one defines "time-based" charts. Regardless of how we package it, price movement is linear. Retail traders were sold a bill of good twenty years ago with the segmented bars -- 1m, 5m, 15m, etc -- as though any of that meant anything. Then came the range-based bars and constant volume bars and candlesticks and so on and so on. Then there are all the "patterns" and the near-infinite number of indicators and the clouds and bands and envelopes. And the ability to read price movement gets trampled.

To the trader who reads price, time matters. He understands that price is either trending or ranging, and if price is ranging, it is important to know how long price is ranging. Charting a long bar interval such as a 30m or hourly doesn't help much because he's watching a tick travel up and down the bar like a bird whistle until the hour's up and the party moves to the next bar. Perhaps a tick chart is too micro for him, but if one is going to trade price movement, it is necessary to watch price move. If the trader can't do that, then he has to find some other way of profiting from the markets.

 

[forker]

I think charts and candles are like looking in the rear view mirror while driving forward. I only look at them to define my stops and relative targets. All my analysis is fundamentally based.

 

[TexasRangersFan]

I think charts and candles are like looking in the rear view mirror while driving forward. I only look at them to define my stops and relative targets. All my analysis is fundamentally based.

I used to think that way, but it is amazing how charts following a certain pattern repeat history.

heads and shoulders... cup with handle...flat bases....

 

[tomorton]

I think charts and candles are like looking in the rear view mirror while driving forward. I only look at them to define my stops and relative targets. All my analysis is fundamentally based.

FA drives the charts, as the seasons drive the weather. But don't you even look at price when on the brink of making a trade?

 

[forker]

FA drives the charts, as the seasons drive the weather. But don't you even look at price when on the brink of making a trade?

I only look at price when I am about to make a trade or set an order. Until then I don't look at it and spend all my time studying statics, analyst reports, central bank statements and individual speeches, market relationships (commodity prices, equity markets, fixed income) . For me a trade is all about tracking the cycles and opening long term trades as well as short term surprises where a high grade release are outside expectations.

 

[forker]

I used to think that way, but it is amazing how charts following a certain pattern repeat history.

heads and shoulders... cup with handle...flat bases....

Ty thing is, patterns as much as they form have as many failed outcomes as possible hey do successful. As a trader you have no way of knowing when either is going to happen. The only way to get ahead is to focus on the drivers of the market and that's economic releases, central bank activity, other news and sentiment. Charts don't give you this info

 

[darktrade]

They are mostly useless but occasionally useful.

 

[counter_violent]

Ty thing is, patterns as much as they form have as many failed outcomes as possible hey do successful. As a trader you have no way of knowing when either is going to happen. The only way to get ahead is to focus on the drivers of the market and that's economic releases, central bank activity, other news and sentiment. Charts don't give you this info

They do, but not often.
Smart money at some point, enters the market. It can be identified in real time on the chart(s).

 

[forker]

They do, but not often.
Smart money at some point, enters the market. It can be identified in real time on the chart(s).

Whatever the pattern\structure, you only need to look at the a months data to see about a 50 percent spread between failed setups and successful setups. This spread is even present with trends where price fails a setup only to continue outside of structure formations typical in trading zones. You can see this success failure pattern everywhere across any technical setup being used including time frame correlated.

Its impossible to take individual setups and know which ones are going to bag profit and which are not. In addition to this, you don't have a realistic way to interpret how much profit potential is in the ones that work out. So what is left is a trader having to force adaptation of strategies that employ hard targets or try an trail price. Neither of these work well because you either over or undershoot targets or volatility takes you out.

The only realistic way of operating profitability in markets is to follow the same principles followed by the participants that have the ability to move markets. You will never see a hedge fund trading off charts and the same goes for investment banks and any professional trader. The ones that are successful in the long term (because you can be technically successful short term but fail long term), are the ones that follow sentiment.

Why are professional news terminals so expensive? Because they can demand that price as knowledge equals profit and large players are willing to spend the money for it.

Why do all interviews have fundamental context? They don't talk about chart patterns, they talk about the drivers behind and anticipation of outcomes.

I only became truly successful as a trader when I turned off the idea that I could predict future price movement using nothing but charts. The best I managed through technical trading was an account that was overall flat.

I'm not saying it's impossible to trade technically. After all we thought the world was flat at one point. My only observation is that I have yet to come across a trader that is able to generate long term profit consistently this way. I would have thought by now, 16 years into this that I would have met one by now but that isn't the case. The ones that are able to do it seem to have a balance of fundamental and technical. To me however, mixing the 2 are unnecessary as I have proven to myself many times over that I can do it without considering technicals.

 

[counter_violent]

Whatever the pattern\structure, you only need to look at the a months data to see about a 50 percent spread between failed setups and successful setups. This spread is even present with trends where price fails a setup only to continue outside of structure formations typical in trading zones. You can see this success failure pattern everywhere across any technical setup being used including time frame correlated.

Its impossible to take individual setups and know which ones are going to bag profit and which are not. In addition to this, you don't have a realistic way to interpret how much profit potential is in the ones that work out. So what is left is a trader having to force adaptation of strategies that employ hard targets or try an trail price. Neither of these work well because you either over or undershoot targets or volatility takes you out.

The only realistic way of operating profitability in markets is to follow the same principles followed by the participants that have the ability to move markets. You will never see a hedge fund trading off charts and the same goes for investment banks and any professional trader. The ones that are successful in the long term (because you can be technically successful short term but fail long term), are the ones that follow sentiment.

Why are professional news terminals so expensive? Because they can demand that price as knowledge equals profit and large players are willing to spend the money for it.

Why do all interviews have fundamental context? They don't talk about chart patterns, they talk about the drivers behind and anticipation of outcomes.

I only became truly successful as a trader when I turned off the idea that I could predict future price movement using nothing but charts. The best I managed through technical trading was an account that was overall flat.

I'm not saying it's impossible to trade technically. After all we thought the world was flat at one point. My only observation is that I have yet to come across a trader that is able to generate long term profit consistently this way. I would have thought by now, 16 years into this that I would have met one by now but that isn't the case. The ones that are able to do it seem to have a balance of fundamental and technical. To me however, mixing the 2 are unnecessary as I have proven to myself many times over that I can do it without considering technicals.

I agree with everything you say in this post.

However, you can see in the charts where the smart money enters the arena. The dead give away is in the coordinated correlation across related instruments. It cannot be disguised. Whole market in agreement, and utterly pointless trying to buck that sentiment.

 

[forker]

I agree with everything you say in this post.

However, you can see in the charts where the smart money enters the arena. The dead give away is in the coordinated correlation across related instruments. It cannot be disguised. Whole market in agreement, and utterly pointless trying to buck that sentiment.

That may be the case but you cannot quantify the basis of the move and therefore you cannot determine the parameters of the trade appropriately.


So for example, is the move a change in sentiment that's built up over days, weeks, months or Is it nothing more than a surprise data point( meaning it's a short term move) or news event (referendum or court ruling as examples).
This information is important because it could be the starting point of easing into a trend or it could be nothing more than a trade that lasts a session. For me, I need to know this because I am otherwise assuming targets and stops off the back of nothing more than price. How is price that's started moving going to give you information to separate session trades vs long term trades? It can't so you basically limit yourself to session trades and have to implement inefficient strategies to try and catch trends within a session specific trading model.

 

[tomorton]

Long-term trend-following seems to work.

 

[forker]

Long-term trend-following seems to work.

In a technical sense it translates to getting in late. That being said this isn't a bad thing unless you are only planning on one entry and an exit and even then it just means less profit and potentially slightly more risk. I tend to get in on multiple entries and take profits while scaling in again at better prices.

The other issue when dealing with long term trades technically is knowing when it's time to get out of it. You could use trend line breaks but then again those could be driven by short term factors. So while it is relatively easy to accumulate profit trend following technically, it isn't going to give as much profit as a fundamental approach. Profit is profit at the end of the day though and you can't argue it.

 

[tomorton]

Cheers forker.

 

[NVP]

The issue is we have to use something to show price variation over time.....candlesticks is one of the main ways to do it ......a bit like Microsoft is the preferred software to run......you don't have to.....but to do busness and work with others it's the norm

If you don't like it then use something else

N

 

[TexasRangersFan]

They do, but not often.
Smart money at some point, enters the market. It can be identified in real time on the chart(s).

True, 66-75 percent of all the stocks traded in the U.S. are bought by fund managers.

And they look at charts.

When they see a trend they react. Yeah, they react to inflation rates, unemployment figures , oil prices etc.....but they were trained to read charts and if they make a bad move they can always tell their boss......'the chart indicated'.... and his boss was trained to read charts etc....

So, if you see a trend developing it's not unrealistic that 3000 fund managers across the country might see the same thing and buy into it. We have to learn to read charts, because they read charts; and that is where the money goes.

BTW, I wonder how many hedge / funds/mutual funds there are across the country and how many people are employed to support them; to include administrative staff? I bet it is in the hundreds of thousands.

 

[counter_violent]

True, 66-75 percent of all the stocks traded in the U.S. are bought by fund managers.

And they look at charts.

When they see a trend they react. Yeah, they react to inflation rates, unemployment figures , oil prices etc.....but they were trained to read charts and if they make a bad move they can always tell their boss......'the chart indicated'.... and his boss was trained to read charts etc....

So, if you see a trend developing it's not unrealistic that 3000 fund managers across the country might see the same thing and buy into it. We have to learn to read charts, because they read charts; and that is where the money goes.

BTW, I wonder how many hedge / funds/mutual funds there are across the country and how many people are employed to support them; to include administrative staff? I bet it is in the hundreds of thousands.

That's not really what I was driving at in answer to forkers points.

Interestingly, the Clinton e-mail news just out, could see the US indices gap higher from the Asia open, and climb steadily through London and into US.
It could be a trend day.

I have some long US Indices positions, held over the weekend. I have just moved all my limit orders up by 150 points. Could be a nice little earner ! Time will tell, as always.

 

[Fugazsy]

Ty thing is, patterns as much as they form have as many failed outcomes as possible hey do successful. As a trader you have no way of knowing when either is going to happen. The only way to get ahead is to focus on the drivers of the market and that's economic releases, central bank activity, other news and sentiment. Charts don't give you this info

My perception is the opposite, most of the time FA is showing in TA, market movers will place often themselves before the release and it is showing on the chart, the degree of the ability in reading it will makes the difference.

Of course one has to be available to any FA information available because they can move markets but if the direction of the least direction is already established (which can be deducted by only TA analysis), it will not change his direction despite the outcome.

In many cases Fundamental news can be useful in fading the market, lets say the strength is indicating a bear market and a positive news is released, I will try to fade that move at an important technical level.