The Key Of Success In Forex Trading Is Not Just Education

[Trader Raider]

Originally Posted by Caprica

Have you back tested your candle stick strategies?

Personally, I found that candle sticks not to stack up very well in back testing and modifying the system to wait for confirmations makes the expectancy of the system even worse.

"Confirmations" is used in the context of smaller time frames. For instance, if you believe you have a setup on say the 2hr and 30min charts, you probably want to seek confirmation on a smaller timeframe such as 5min or 1min depending on the strength of the move. The close of the smaller timeframe candle should provide clues on whether the market is about to move in the direction of the setup (eg. a longish candle with shorter wick and longer body), or that it might just be a false break (candle with a longer wick and shorter body).

In other words your alerts may fire off if price hits your target. But you would want to wait until the close of the small-timeframe candle before you make your decision to enter the trade providing all your other indicators stack up. Eg. if your alert goes off at say 8:31am, it probably is wise to wait until 8:35am (on the close of the 5min candle) to see whether you really have somthing going on here. Then again, if 8:30am was the news release for monthly US Payrolls (as per last Friday), viewing the formation on the 5min chart at 8:35am may be too long to wait if the news causes a major reaction. In this instance you would be better off referring the 1min chart at 8:31am to give you a better view on how the market is unfolding.

[Trader Raider]

Good example of what I am talking about is yen shorts during Euro morning session less than hour ago:

• Setup on the 2hr and 30min
• Entry / Exits on the 5min (or 1min if the move is strong)
• 50pips there for the taking from 118.25
• Time in the market <60mins

Look for the confirmation on the smaller timeframes when things just start to move. You will minimise chances to enter low momentum situations with false breaks.

[Caprica]

Hi TraderRaider,

I suspect that most of your success comes from analysis of support/resistance and momentum at multiple time frames and not from candle stick patterns.

[Trader Raider]

Support and resistance (as how it is typically defined) only comes into play in the larger timeframes. One would want to know before entering a trade that there is no significant obstacle in the way to counter the momentum of the market. On the other side of the trade, one would also want to identify a logical place to exit as the action gravitates towards the target area before momentum dries up (or take some money out if it looks like a minor one only and could be taken out, say off the back of a major news announcement for example).

Having said that, support and resistance in the larger timeframes is also a good opportunity to anticipate/predict a trade off too. But this is no different to trading off a break against the longer term trend or congestion breakout back in line with the trend. But I view this as a setup only and any break / reaction still needs to be confirmed and entry timed within the smaller timeframes. How many times do we see candle wicks poking out of a range that amount to nothing more than the market trying to make a move, hestitating and then falling back into line.

As for candlestick patterns, I don't get too caught up with the detail other than to be able to cleanly draw diagonals and horizontals which either touch the wicks or bodies of multiple candles to "validate" the existence of a trendline, support or resistance. Whether one uses fibs, moving averages, round number supports, bollingers, etc. if one can't draw neat lines, then it probably doesn't exist, exists only in one's imagination, or the market is too erratic to enter anyway. I also like to point out that if neat lines cannot be drawn up, it's not to say that nothing is there. It is just saying that the market (money flow) is not focused on that timeframe right now and by zooming out, drawing of neat lines are likely to be found on a larger timeframe. Now whether that timeframe is suitable to one's trading methodology, psychological profile, etc. that is another story. But in summary, I believe it is very risky to enter a trade based on assumptions that one is not entirely confident with or that cannot be validated to some degree.

[forextrend]

Originally Posted by Trader Raider

Support and resistance (as how it is typically defined) only comes into play in the larger timeframes. One would want to know before entering a trade that there is no significant obstacle in the way to counter the momentum of the market. On the other side of the trade, one would also want to identify a logical place to exit as the action gravitates towards the target area before momentum dries up (or take some money out if it looks like a minor one only and could be taken out, say off the back of a major news announcement for example).

Having said that, support and resistance in the larger timeframes is also a good opportunity to anticipate/predict a trade off too. But this is no different to trading off a break against the longer term trend or congestion breakout back in line with the trend. But I view this as a setup only and any break / reaction still needs to be confirmed and entry timed within the smaller timeframes. How many times do we see candle wicks poking out of a range that amount to nothing more than the market trying to make a move, hestitating and then falling back into line.

As for candlestick patterns, I don't get too caught up with the detail other than to be able to cleanly draw diagonals and horizontals which either touch the wicks or bodies of multiple candles to "validate" the existence of a trendline, support or resistance. Whether one uses fibs, moving averages, round number supports, bollingers, etc. if one can't draw neat lines, then it probably doesn't exist, exists only in one's imagination, or the market is too erratic to enter anyway. I also like to point out that if neat lines cannot be drawn up, it's not to say that nothing is there. It is just saying that the market (money flow) is not focused on that timeframe right now and by zooming out, drawing of neat lines are likely to be found on a larger timeframe. Now whether that timeframe is suitable to one's trading methodology, psychological profile, etc. that is another story. But in summary, I believe it is very risky to enter a trade based on assumptions that one is not entirely confident with or that cannot be validated to some degree.

Just quit talking about this and that and just present your trading plan so we can all see what you are about.
One thing is true in forex if you are not carefull you will be eaten alive over and over again.

"Many are called but few are chosen"