So I guess I'm going to be trading these signals (when they hit support and resistance) as well as the spike and ledge, fakeout-shakeout, news reversal and three little indians formations. The only other thing I will be doing is keeping a trading index based on an advance/decline line by volume up and down.
I've got time on my hands, so the next step is probably to have a go at analysing what will happen next? I've tried to read the charts and have posted my thoughts, with the hope that someone will put me right if my thoughts are misplaced.
Barclays; we see a hammer on the 19th coming at a support level of 340, a level that has been tested three times previously, which suggests that the trend will turn upwards from this point, however, if it breaks below this support level, prices could tumble.
British Airways; we see a hammer on the 17th and a lot of indecision and lack of activity since then. If prices fall, they will likely retest support at 160.
British Land; we see a near hammer at the support level of 460 on 19th though we need either confirmation or a stronger reversal signal to think that prices will rise from this point.
Persimmon; we see an inverted hammer on the 18th which gives a weak signal that a trend reversal is on the horizon with prices rising. However, if one pays attention to the spike and ledge pattern formed from 14th to 19th, one might be looking for a downward breakout.
Petrofac; we see a few near hammers and inverted hammers over the 18th and 19th, which suggest that prices might rise from here. One might be looking for confirmation signals.
Standard Chartered; we see a morning doji star at the support level of 1340 on 17th, which suggested a trend reversal. One would assume that prices would continue to rise from the last point on this chart.
Barclays; we see a hammer on the 19th coming at a support level of 340, a level that has been tested three times previously, which suggests that the trend will turn upwards from this point, however, if it breaks below this support level, prices could tumble.
British Airways; we see a hammer on the 17th and a lot of indecision and lack of activity since then. If prices fall, they will likely retest support at 160.
British Land; we see a near hammer at the support level of 460 on 19th though we need either confirmation or a stronger reversal signal to think that prices will rise from this point.
Persimmon; we see an inverted hammer on the 18th which gives a weak signal that a trend reversal is on the horizon with prices rising. However, if one pays attention to the spike and ledge pattern formed from 14th to 19th, one might be looking for a downward breakout.
Petrofac; we see a few near hammers and inverted hammers over the 18th and 19th, which suggest that prices might rise from here. One might be looking for confirmation signals.
Standard Chartered; we see a morning doji star at the support level of 1340 on 17th, which suggested a trend reversal. One would assume that prices would continue to rise from the last point on this chart.
superfuego
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Okay, I'll admit to not reading anything in this thread besides the first five posts. If someone already said this, well, my mistake.
An important aspect of trading is living to trade again. It doesn't matter how convinced you are in your abilities, you should only risk a small percentage of your available funds on a given wager.
Think of it this way. If I start with $100, and lose $1, I only need to make back 1%. (It's really 1.01, yeah, I know). If I start with 100 and lose $10 I have to make back about 11%. If I start with $100 and lose $50 I now have to make back 100%. That's hard.
What I'm saying is that you maximize your long term gains if you don't wager a significant amount of your bank roll on any given bet.
Well, hopefully that's useful. Maybe you're doing better now, considering your first post was several months ago and you're still on the forum?
Nelson
An important aspect of trading is living to trade again. It doesn't matter how convinced you are in your abilities, you should only risk a small percentage of your available funds on a given wager.
Think of it this way. If I start with $100, and lose $1, I only need to make back 1%. (It's really 1.01, yeah, I know). If I start with 100 and lose $10 I have to make back about 11%. If I start with $100 and lose $50 I now have to make back 100%. That's hard.
What I'm saying is that you maximize your long term gains if you don't wager a significant amount of your bank roll on any given bet.
Well, hopefully that's useful. Maybe you're doing better now, considering your first post was several months ago and you're still on the forum?
Nelson
Thanks for the comment Nelson. I'm ready to go again, just committing a small part (3%) of my capital on any given trade. I'm just starting with a small amount of capital and trying to break-even. I would have to make back 5000% to get back to where I started.
1% at a time, eh.
1% at a time, eh.
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Entered two paper trades on Thursday at 3.30pm. The Dow and ftse were fairly bullish.
A hammer had formed above support, followed by a green candle. I figured the market would perform well in the last hour, so entered at 1379. I bought as prices were rising. A protective stop was placed at 1360, 1 point under the low. As you can see, price fell 6 points by the close, and I decided to hold. My stop would have been hit at the open the next morning.
The other trade was with Aviva.
A hammer had also formed at support, followed by a green candle, so I bought at 390. A protective stop was placed one point under the low at 385. My stop would again have been taken out the next morning.
In Hindsight:
I might have waited to enter on a pullback, or waited to see where we were at the close. Or I could have waited till the next morning. My buy impulse was somewhat emotional. It is clear to me now how everyone is looking at the same page, and they all know where the stops are. Both my stops were taken out by one point. The Standard Chartered candles were some way off support levels, so I was perhaps too hasty.
Possible solutions:
1 Set wider stops, perhaps 3 points below the low. Reward to risk ratio would suffer.
2 Wait till the next morning and time my entry better. The problem here is that I am at work until 8.30am UK time, and I can’t really get away with placing trades at work (although it has been known on occasion). By the time I would have got home and placed a trade, much of the gains would have already been made.
Aviva finished the day at 410, which would have been a 20 point gain.
Standard Chartered finished at 1409, a 49 point gain.
Final thoughts.
I feel more confident that I know what I'm doing. I just need experience. I’m also grateful for the advice to trade with a longer timeframe than 3 minutes as I was doing. I feel much more comfortable using a 1 hour timeframe and taking it down to a 10 minutes timeframe for a closer look.
A hammer had formed above support, followed by a green candle. I figured the market would perform well in the last hour, so entered at 1379. I bought as prices were rising. A protective stop was placed at 1360, 1 point under the low. As you can see, price fell 6 points by the close, and I decided to hold. My stop would have been hit at the open the next morning.
The other trade was with Aviva.
A hammer had also formed at support, followed by a green candle, so I bought at 390. A protective stop was placed one point under the low at 385. My stop would again have been taken out the next morning.
In Hindsight:
I might have waited to enter on a pullback, or waited to see where we were at the close. Or I could have waited till the next morning. My buy impulse was somewhat emotional. It is clear to me now how everyone is looking at the same page, and they all know where the stops are. Both my stops were taken out by one point. The Standard Chartered candles were some way off support levels, so I was perhaps too hasty.
Possible solutions:
1 Set wider stops, perhaps 3 points below the low. Reward to risk ratio would suffer.
2 Wait till the next morning and time my entry better. The problem here is that I am at work until 8.30am UK time, and I can’t really get away with placing trades at work (although it has been known on occasion). By the time I would have got home and placed a trade, much of the gains would have already been made.
Aviva finished the day at 410, which would have been a 20 point gain.
Standard Chartered finished at 1409, a 49 point gain.
Final thoughts.
I feel more confident that I know what I'm doing. I just need experience. I’m also grateful for the advice to trade with a longer timeframe than 3 minutes as I was doing. I feel much more comfortable using a 1 hour timeframe and taking it down to a 10 minutes timeframe for a closer look.
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it looks to me like these stocks in this time frame don't suit your entry strategy - or at least your timing i.e. buying off support bounce. in both examples both were 'false' bounces. on the other hand, perhaps you need to be prepared for this happening and enter off the retest or get some other confirmation? also, this seemed to happen on both charts on the third bounce (is that coincidence?). it almost seems you'd be better off buying lower support and selling higher resistance. i noticed breakout trades wouldn't be ideal either. only thing i can think of is to re-enter immediately when you're stopped out and at the same price you were stopped out at (in other words be mentally prepared to be stopped out and then re-enter at previous low. it looks like something that happens often enough?)- you'd have got your money back both times if you'd done that but i would backtest that more as well. have you thought about trading off the daily chart? what does that look like?
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RubenE
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As schixm already suggested I'd also recommend trading the daily timeframe for starters. If you're more experienced you can consider switching to the smaller timeframes. Trading the daily timeframe just gives you more time to analyze the complete picture and doesn't force you to make decisions as fast, so you're less likely to make mistakes. At least that's from personal experience.
Ruben.
Okay. Thanks guys. That's very useful. I do want to be in a position to trade the hourly timeframe in the not too distant future, but I see from the daily timeframes that it would make things quite a bit easier. Meanwhile I can monitor the hourly timeframes until I feel confident enough to trade them.
I infer that when buying off support bounce would you ideally be using a much shorter timeframe, say 3 mins.
A question - is the first bounce the large red candlestick, or the hammer?
I infer that when buying off support bounce would you ideally be using a much shorter timeframe, say 3 mins.
A question - is the first bounce the large red candlestick, or the hammer?
support bounces occur in all time frames - which time frame you prefer is another matter. the first bounce is where you entered - the low of the hammer. it was 'technically correct', just unlucky. but i've noticed you already identified the main problem with these trades - entering too late in the day on an hourly time frame. i would think it better to be entering the trades earlier in the day on the hourly or change the time frame either to a smaller one (5min) or even better, increase it to daily.
RubenE
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Hi RSD,
Yes, the big difference is that you can do your analysis at night and be prepared for the next day. It will allow you to make a plan for the next day, like: if A happens I will do this and if B happens I will do this and if C happens I will do nothing. It worked really well for me. I usually just use stop orders for both entering and exiting and not pay attention to what's happening during daytime. It gives me peace of mind and doesn't let my fear and greed take over. It allows you to stick to the plan that you had before entering the trade and let the price action do the rest for you. The only thing I do is adjusting stops when I think it's necessary. I realize that even though this is working for me it doesn't mean it works for you, because every trader has his/her own preferences, but from what I read happened to you the timeframe you're trading on is just too small.
Ruben.
I am reading Steve Nison's 'Japanese Candlestick Charting Techniques', and in it, he states "candlestick analysis usually should not use intra-day charts of less than thirty minutes." The reason why is because charts of smaller timeframes tend to result in numerous doji being formed, thus diluting the significance of doji as a whole, which renders analysis less useful.
Also, I was wondering about the policy of waiting for confirmation of candlestick patterns that signal trend reversals. Steve Nison recognises that it is a trade off between risk and reward; the longer one waits for more confirmation to reduce the risk involved in the trade, the less reward one is likely to get.
I know one of my biggest mistakes when losing my initial starting capital was that of trying to impose my beliefs on the market. I would hold onto losses, assured that the trend would turn and I would be in profit again shortly. Plenty of times this just didn't happen and my losses would grow, until I could take them no more and closed the position, usually just before the trend turned!
Nison offers a good analogy of one fighting against the trend;
'Imagine you are driving along a one-way street. You notice a steamroller going down this one-way street the wrong way. You stop your car, take out a sign (that you always carry with you) that reads "Stop, Wrong Way!" and hold it infront of the steamroller. You know the steamroller is going in the wrong direction. But the driver may not see you in time. By the time the steamroller turns around, it could be too late. By then you may be part of the pavement.'
Nison offers a good analogy of one fighting against the trend;
'Imagine you are driving along a one-way street. You notice a steamroller going down this one-way street the wrong way. You stop your car, take out a sign (that you always carry with you) that reads "Stop, Wrong Way!" and hold it infront of the steamroller. You know the steamroller is going in the wrong direction. But the driver may not see you in time. By the time the steamroller turns around, it could be too late. By then you may be part of the pavement.'
Thanks to the article, Now there is more reason to comment than ever before! Everyone should participate. I am incorporating what your wrote to our project!
Great little article.
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I'm looking at the shorter timeframes to try to get a feel for them. I've added RSI and stochastics to my arsenal, purely and only to give added confirmation to price action analysis.
I've spotted a morning star formation in Xstrata 30 mins timeframe. RSI was low and rising and the %K line was crossing the %D line. I decided against buying (paper trading) as prices kept rising to 832.50, but waited for a retracement. When a doji formed at 30% retracement I bought in at 829.
I've spotted a morning star formation in Xstrata 30 mins timeframe. RSI was low and rising and the %K line was crossing the %D line. I decided against buying (paper trading) as prices kept rising to 832.50, but waited for a retracement. When a doji formed at 30% retracement I bought in at 829.
