Candlestick Patterns Trading System

All right, I've made a picture here of some of the candles that I'm using in the 4Hr MACD System. These are only a few. There's a lot. If you want to study it, you go to Google, and you can search there for "candlestick patterns." These are only a few that I'm using. When I see that, I know there's something coming up. If you look at number A, you will see there that the price is finding support on the 8 ema, and it's nicely going upwards. (Even if it's on the 21 or the 200 or the 89, it doesn't matter.) You can see it's finding support there, rising, making higher lows, and that is a very good opportunity to spot it, and then you can enter there. Normally your risk is,

also, low there because the candles are small. And, then, B, you can see the price making those tails to the bottom. This is a bit difficult one. You know the price is going to go up, but when do you enter? And that's where your timing has got to be perfect, and that's a difficult one. All I know at that stage is that the price is going to go up, but those tails are very, very, very dangerous. So, I normally don't trade that. I'm showing you this because of the fact that it can take your stop loss out. Your stop loss has got to be huge. It has to be below that low of that previous... that low, that long tail down, the lowest one. So, it can be a very huge stop loss.
The next one, C. As you can see, it finds support there on the 21 ema, just below the 89, and that is a certainty coming down.

Number D. What I like about that one is the small candles. At that stage, you're not

going to know whether it's going to come down, but, when that red candle occurs, it sort of completes, in my terms, sort of an evening star. Although there's four candles in between, I still consider that as, let's say a "Phillip" evening star. And, then, number E. Look at those tails. Four candles in between, and then it took off. To me, that is a morning star pattern. It's not just with one candle; a small one is in between, but there are four of them. Look at those tails, down. Then, number F. That's what I've seen a lot. You get two small candles within that move, which is also sort of a morning star. Then G, that tail upwards, and then those three little small candles before the red one coming down. That's also an indication for taking the trade. Look here at H, how the price is making sort of a round bottom, small candles before going upwards, a very nice one. And, then, what I like a lot is that one, J. It's an engulfing candle. It's the position that candle is in. If it is normally on support or resistance or on a trend line, like the 89 or the 200, that's a very strong signal, as well, to make a couple of pips.  Then, K is about the same, and E, and where was the other one that we did? Yeah, E, and then D, maybe, also. Look at those small candles before it starts moving down, and, after

that move down, you know this is it. Look how those lows of those small candles on K  almost closed on the same level. People say, "Yeah, but it's finding support there," but  that's, you can have a look... If that happens, it normally comes down. L, the only reason I put it there is... Look at the small candles before there's a big move, or a move, not normally or necessarily a big move, but there is some movement after

small candles because small candles tell me that it's run out of steam, especially if it's small candles in terms of red and green, up and down candles, you will know there's something coming up.Well this is about the major ones that I'm looking at. So, as I said, you can go to Google
and search for candle patterns, see for yourself. And do some back testing yourself, to really see for yourself what type of patterns gives good signals. Well, I like these ones
especially on the EURUSD. I'm not talking about other pairs. This is what I like on the
EURUSD. When I see that type of stuff, that I've got here on this picture, you will know that you can go. If you look at C, for instance, just to go back quickly, I've just marked that resistance on the 21 ema. If you look on the 200, there's two green candles going up, the first one being an engulfing one and the next one going up, so that's also a signal that you can use. Well, this is about it.

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Lesson 2 --- Tsunami

I have been on a lot of forums only observing as to the ideas and behavior of



people. This forum is the first one I found where people really exchange some useful and


positive information.


I always asked myself why is it that only about 5% is making a success of it as the


overall claim are amongst brokers. After two years of study and trying about every


strategy I could lay my hands on I come to the conclusion that as people differs in looks


and in perceptions they also differs in their trading perceptions.


Then I saw people act upon their perception and interpretation of what they feel is


the right thing to do. I am right and they are wrong is the type of attitude. Then there are


those that follow someone else religiously as long as he give the direction till he is wrong


three times in a row than it is off to the next system.


Why am I telling you all about this. If you haven’t tested a system over at least 30


live trades (paper trades) you cannot declare it as successful. After 30 trades you will


have the heart of the system engraved inside. What I mean by engraved is that you should


make notes about each trade as to emotion experienced, why was it wrong, is it the


system or my bad decision, did I stick to the rules, was I following the system or did I use


my little version of it etc. etc.


This 4 hour MACD strategy gives a signal with the MACD patterns(round top,


lower highs etc.) as to the timing of the entry. It only observe the possible direction due


to resent movements. People wants a mechanical system that tells them everything and


even do the deal for them. It must draw the trendlines, recognize the patterns, work out


the entry, stop and profit levels. There is however one aspect that people ignores and that


is that the market has an emotion that is hard if possible to built into a automatic system.


I am going to explain it in this way. When I am sitting on the beach with my back


to the ocean relaxing in the sun and there are people playing and running around etc. The


fact that people run around does not make me nervous but it is when there is a different


kind of behavior in there running that calls my attention. I will most definitely see in their


faces what the emotion of their running is. What happens first is that those that saw the


reason for their running first are the leaders in this action. The volume of people keeps


increasing as the knowledge comes known till the masses start to react.


I have five things that I can do.


Firstly I can be a nervous sunbather and jump up every time someone comes


running past only to find that it is trying to catch a running ball. Nothing serious. That is


how 90% of people do there trading. Jumping after every move only to find it was normal


zig zag movements and their stoploss get hit frequently. They get wiped out very quick.


Secondly I can put on my dark glasses put on some sun tan lotion and ignore the


running at all as I am covered. These people put in their deal goes fishing and looks after


two days how did it goes. Sometimes it works sometimes it doesn’t. After a year of


trading they find themselves round about breakeven.


Thirdly there are those that wants to investigate everything in detail as to why.


By the time they found out why are the people running they get hit by a tsunami. By the


time you found out why the market is running it is to late as it is about to turn around


again. They always time the top or bottom but in the wrong direction. You get people that


is always late. They get wiped out very quickly.


Fourthly you get those that ran along the moment there is some action going on.


This group does make some profit but it is nervous profit. I call them the news traders.
With time (some accounts does not last till then) you can become good at it, but it is due



to experience..


Let me explain to you the concept of the money changers and there actions. When


interest rates comes down due to good economic condition these people send out all sorts


of ways how to lend cheap money for that trip overseas, new car etc. etc. Till the money


availability gets low and spending is sky-high due to the easy way to get money. Then the


interest rate is raised by 0.5% and after a month another 0.5% and so on. More money out


of the pocket of the consumer that he has to pay back than what he has budgeted for.


Troubled times!!!!!!!!!. They are collecting till the cycle turns again and then it is


lending out again.


Have you ever thought of it in the field of Forex trading. So many websites


inviting you to buy there system and it tells you exactly(to the pip) where to put your


stops and where to enter and where to take profit etc. etc. If I know the cards that you


have in your hand when playing against you I will always win. I think the brokers knows


exactly where the group stops, entries and exits are. That is why it is important to move


with the big ones. They will only take the price as to catch the weak ones. This is only


my opinion and I might be wrong. I am only very cautious and suspicious.


There are those that invites you to come and play on the beach of Forex knowing


that a tsunami will hit some or other time. All they have to do is get as many people on


that beach while they are playing around with them and over time they pass the ball into


the hands of the majority but when the signs of a tsunami is nearing they are the first ones


to leave without the majority noticing it because they are busy playing. Only there


followers knows.


When the tsunami hits they have their deals in to take advantage of the panic


selling of the masses. They created it beforehand. Not the tsunami but the playing field


conditions. Spreading some news here and there that they know the masses will react


upon and so setup the whole scene. When the masses are buying you should be selling


and visa versa. That is what a well known speaker and investor says “to step into the


pain”.


We as tiny investors does not have the resources to step into that pain as it means


waiting for some time before the bubble burst and our capital cannot handle those type of


stoplosses as they must be huge to handle the playing area of those on the beach. The


money changers can handle that, They will sit for six months and knows that the coming


tsunami will make them rich.


Fifthly are those that watches the faces of those that play. Their emotion will tell


the overall status. Playing!!!!!!. The big ones leave the scene unnoticeable to the


majority. It is only when there followers see they are not there anymore that they started


to react. It is at this point where you as part of that 5% must step in. Recognizing the


changing emotion and run with them. You might not know why you are running yet but


that you will read in the papers and not others reading about you in the papers.


The MACD signal only tells us that a change in motion (not emotion) is taking


place. We then have to look for a change in emotion and that comes with the TAIL I was


describing in the exercise. There are many formations as to show the change in emotion.


Morning/evening stars, tweezer top/bottom, spinners, inside candles, engulfing candles,


doji candles etc. etc!!!!! look at investopedia.com or any educational website for those


emotional signal patterns. Study past setups in the MACD signal that produced results
and try to recognize the change in emotion. Also study the signals that did not produced



results and see if there was emotional activity or not. If you have both in place, the


MACD signal together with the emotional signal your chances of success are so much higher.

READ MORE - Lesson 2 --- Tsunami

STOPLOSS

I haven’t discussed the field of stoplosses in the PDF document as it is not a matter of pattern and or standard way. There are no definite rules as to where stoplosses should be placed.This is the major cause for people loosing money. If stops wont be hit nobody will loose money. I just feel that to little time is spend on discussing stoplosses. We very easily come up with a strategy in detail but not a stoploss strategy. I have done the same giving very exact instructions in the PDF document as to the entries and profit targets but nothing on stoplosses. The question is now----- WHY??????.I deliberately did not give any details as to stoplosses as that depends on each individual’s profile. For some people a 20 pip possible loss is just to much to handle while other’s can handle 50 pips. The question is how much capital do you have. If you risk 50 pips how much in percentage is that of your total capital. For anyone to expect trading over a long period of time it is of essential importance to risk as little as possible of capital. The excepted rule is not more than 3%-5% of capital.If your capital is $1000 then your stoploss should not be more than 3% of that which equal $30 or about 3 pips.. Now that does not make sense on a leverage account. That is why trading a mini account(1 pip = $1) with $1000 makes it ten times better and the 3% risk now remains 30$ but it now becomes 30 pips. Some have it that 5% on a system that gives 65+% correct deals is also acceptable. Thus we can risk between 30 and 50 pips on a mini account of $1000 capital and will have a chance to trade over an extended period of time that when we hit that 3-5 losses in a row we will not be wiped out and will still have capital to recover.Now comes the question of where to set my stoploss when the MACD gives a signal. If your profile (3%-5% of capital) only allows you a 40 pip stoploss and the most resent low/high or two to three bars back or the trendline is more than that away you simply skip the trade. I have given a way to enter at three different levels to reduce the amount of pips risk in the PDF document. You can use that to make a 50 pip risk to about 35 pips overall. That is also done just to make sure that you stay in the business in the future.One does not necessary have to have all your capital in your account with your You might have $10000 capital of which $3000 is with your broker and the rest in your own bank account. You can than calculate your risk on $10000 as long as that money is available for the Forex. The moment you use of that money ( for personal use) your risk in terms of pips reduces as well because your capital is less.When the MACD gives a signal it all depends how far away is the support and resistance levels. If it is more than your risk profile just let it passes by. This is how I do it. My risk profile allows for 50 pips max but I don’t like using more than 43. I don’t use equal numbers as you will notice how many times it exactly test those levels. I uses 23,28,33,38,43. Put your stops below the resent support/resistance.The problem with most people is that they cannot afford 3 to 4 losses in a row as it will wipe them out. Any system has it bad patches. The MACD I believe can and will give 3 losses in a row sometimes. That means 150 pips could be on the cards. Can you still go on after such a loss. If not I suggest you save money till you can survive such a run of bad deals. I have made provision for 200 pips loss in a bad run.Hope this helped in any sense.

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Technical vs Fundamental

Originally Posted by Canadian_MAF
Much like the other users I have to commend you on the quality of your report, and thank-you for sharing it. However, myself being a mostly fundamental trader I find it hard to appreciate these systems. I am a firm beleiver that it's the news which shapes the markets, not charting trends/patterns.I went both ways in my trading path of almost 10 years. First fundamental and then technical. What I find was that there are some sort of a link between the two. People act upon information and most definitely on their interpretation of that information. It is not so much the info as the interpretation thereof that brings action according to the interpretation. I found that certain technical indicators are actually based upon this interpretation of info. Moving averages are just smoothing out the actions or movements based upon the interpretation of the information. The shorter the period the most resent info are carrying the weight and the longer the period the more and broader info are involved. That is why I don't trade crossovers of moving averages but rather studied the movement around(support and resistance) this moving averages. To me I don't see the price or value of a currency but to me it is the actions of people based upon their interpretation of information they have. Thats why one are bying and one are celling at he same time. Different strategies also play a roll. To study fundamentals surely does have its place but for me I don't have the time nor the resources to do it. And then I will have to predetermine how are the people going to interpret it to try and predict the price movement and when will I enter en where will I exit a trade.I will rather watch the severity of the fundamentals reflected in the currency movements(actions of the people based upon their interpretation of the info) and base my involvement on that through a tested strategy. I am using two short term moving averages, one medium term and one long term moving average as guides as to the direction of movement. Along this different paths of actions I make my decisions. It is not only the MACD that I amwatching. That only tells me to pull the trigger. The support and resistance levels tells me what people are expecting and what people are willing to pay for the information they have. Humans have the tendency to react the same under certain conditions and that is what support and resistance is telling me.Good luck to you as fundamentals surely is very good as to longer term expectancy and accumilation and adding to positions.

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