Registered User
Joined: 4/13/2005
Posts: 2
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Hi,
This is my first post on the Worden boards.
I'm a final year finance student in London, England.
I'm trying to write a dissertation on the relyability of Japanese candlestick patterns in indicating reversals. My reseach is showing that when filtered with a stochastic oscilator (for overbought/oversold matched with Bear/ Bull indicators, respectively) that the patterns are accurate in 70% of circumstances.
I'm looking for people who:
would like to discuss Japanese Candlesticks
OR
know if there are any similar empirical (or otherwise) studies that have been carried out into this subject.
Thanks for reading, I will really appreciate any help/ intereset,
Regards
James Langlois
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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rednephilim,
I will move this to the Market Talk forum so everyone can discuss it.
- Craig
Here to Help!
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Registered User
Joined: 3/28/2005
Posts: 1
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Hi James,
In the small chance you have not already found it, there is a chapter titled Reliability of Pattern Recognition in Candlestick Charting Explained by Gregory L. Morris. Among other things, the chapter lists some tables of candle pattern rankings based on percent improvement over random calls.
I'm a new trader and have learned candlesticks well enough to read what is happening or has happened. I am just about to enter a phase where I will start learning about using patterns to recognize reversals.
I hope the book helps your studies. It sounds like a fun thing to be studying. And, 70% accuracy sounds like a profitable tool to have! I'd be interested in hearing more about your findings.
Best wishes,
Page
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Registered User
Joined: 10/7/2004
Posts: 2,126
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You must read a book title "Practical Speculation" - by
Victor Niederhoffer.
A study conducted from 1995 to 2001 concluded that none of the candlestick patterns was statistically significant at the usual 1-in-20 levels typically used by researchers; thus failed to verify the validity of Japanese candlestick analisys.
I have used candlesticks since 1992, and I can confirm personally that this studies proved just the truth, you have no advantage by using such analisys. I still use candlesticks for the purpose of reading charts, I find the candles helpful in the clarity of exposing informatio (open, high, low, and close).
Good luck!
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Registered User
Joined: 2/24/2005
Posts: 2
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I agree with "BigBlock". I used candlesticks since 2002, and I can confirm you have no advantage by using such analisys. Thechnical analisys
highly subgective. Read a classic book "a randon works down wall street".
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Registered User
Joined: 12/2/2004
Posts: 1,775
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It's my contention that candlesticks don't reveal that much in and of themseves in an overall chart pattern of more than a few days, but do reveal a lot on much shorter time frames. For instance, I'm always looking for stocks breaking out of resistance that has lasted at least a few weeks. If on the day of the breakout the daily candlestick ends the day as fully open or mostly so, to me that is a darn good signal that the breakout has better than a 50/50 chance of going higher in the short term. And the odds increased more if accompanied with significantly increased volume.
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Registered User
Joined: 3/2/2005
Posts: 7
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I would like to comment on the effectiveness of candlestick patterns - I would agree that they are very good for short term predictions when used in conjuction with stochastics as you mentioned, and within the context of the general market (as with any indicator). I believe that if you learn them well, or even just the main 10 or 12 patterns, you will never trade without them. There are some very good books on the subject by Steve Nissan and another by Steve Bigalow. Bigelow has a very good educational website - (removed by Moderator)
Good luck in your studies.
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Administration
Joined: 9/18/2004
Posts: 3,522
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FYI you can find Bigelow on the TCNet platform (Platinum service) as Candlestick1.
Ken Gilb (Kuf)
Chief Software Engineer - Worden Brothers Inc.
Try/Catch - My RealCode Blog
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Registered User
Joined: 12/19/2004
Posts: 457
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Bigblock,
I'm going to dispute this study you mentioned. I'm familiar with Niederhoffer's claim, but much of this time series analysis is a waste of time. You can prove whatever you want depending upon the timeframe you use to study whatever it is you want.
The late 90's was the epitome of a strongly uptrending market. Given the fact that there were very small corrections within the trend, I'd expect systems that are counter-trend in nature would underperform.
None of the mechanical tests of candlesticks even come close to representing how they would be used in real trading.
I take all such studies with a large grain of salt.
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Registered User
Joined: 10/7/2004
Posts: 2,126
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Dear rmr1976 I would never take any information or study as final before I double check. As I mentioned I have used candles since about 1999 and my experience reflect the same thing that Niederhoffer's claim. Now in the markets, as well as trading or investing what works for you may not work for me and viceversa. So It is all a reflection of you, your personality and your believes. Indeed you are the system whatever the system may be.
Take care.
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Registered User
Joined: 10/7/2004
Posts: 1
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QUOTE (rednephilim) Hi,
This is my first post on the Worden boards.
I'm a final year finance student in London, England.
I'm trying to write a dissertation on the relyability of Japanese candlestick patterns in indicating reversals. My reseach is showing that when filtered with a stochastic oscilator (for overbought/oversold matched with Bear/ Bull indicators, respectively) that the patterns are accurate in 70% of circumstances.
I'm looking for people who:
would like to discuss Japanese Candlesticks
OR
know if there are any similar empirical (or otherwise) studies that have been carried out into this subject.
Thanks for reading, I will really appreciate any help/ intereset,
Regards
James Langlois
James:
When you talk about reliability for reversal patterns with stochastics, the reliability of the two indicators (stochastic v. candles), do you refer to the matching of the two indicators or are you alluding to the validity of the price indicators? Reliablility of indicators means they measure the same thing to some degree, but what you really want is a validity indicator. That would answer the question of whether either of these indicators can predict a real change in price movements prior to those movements.
Professor, Ph.D.,Statistics
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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It might be of interest to look at what Stochastics really measures and reveals....
Understanding Stochastics
From there you can decide what it reveals about price and if that is indicitive of a price reversal.
- Craig
Here to Help!
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Registered User
Joined: 12/21/2004
Posts: 14
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I recently attended a class by Steve Nison. I have been using Candlesticks for a while now. The key thing that Steve Nison had to say about Candlesticks is to confirm a Candlestick signal with a Western Technical signal. Steve calls this "East meets West". Typical Western signals he wants people to confirm are support/resistance, stochastics, etc. He wants people to make sure there is a congruence of signals.
Watson
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