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I was having trouble understanding why candlesticks work at all. That is,
there are various sources for lists of candlestick patterns that are often
times reversal patterns, but memorizing the list is a different thing than
understanding how it truly is that these patterns are not mere accidents.
Perhaps the value of candlesticks for indicating potential swing high/lows
is intuitively clear to you right from the texts. It wasn't clear to me.
Here's an exercise has helped me to appreciate the value of candlesticks for
indicating potential reversals at a given timeframe.
1 Browse 5 or 10 minute S&P day session bars until you identify a VERY
SIGNIFICANT swing high/low bar that ALSO has a clear candlestick reversal
pattern per the standard candlestick texts. (e.g., shooting star, bullish
engulfing, etc.)
2 Center the chart on that bar and create a .gif file of that chart for
later study.
3 Change the start time for the S&P day session by adding 1 minute (to
8:31 for the futures). (You can do this without going into the data server
by formatting the price data and clicking the Universe button on the
Settings tab.)
4 Center the new diagram on the same reversal point you identified in
step 1. (Notice that the look of the reversal bar set has changed!) Create
a .gif file of this chart.
5 Repeat steps 3-4 until you have increased the S&P day session start
time 5 or 10 times depending on what bar period you selected in step 1.
Print and compare all the .gif files you've produced.
Conclusions:
A I found in this exercise that SIGNIFICANT reversal swing high/lows
ALWAYS had at least one or two or more clear candlestick reversal patterns
associated with them within the complete set of .gif files produced for that
reversal per the above steps.
B It appears to me that if any set of bars that contain a reversal don't
exhibit a candlestick pattern this is due to the timing of the reversal
high/low within the bar period and the magnitude of the reversal.
Questions:
- I'd like to confirm that those folks doing the exercise above come to
the same conclusions that I have. Specifically, after doing this exercise,
do you agree with both conclusions A and B above? If you don't, why not?
If you don't, what specific reversal date/time led you to your different
conclusion?
- I'd like to formulate a paragraph or two that summarizes these findings
in a systematic manner. I've got the beginnings of thoughts for these
paragraphs and will share them once complete. But I'd like to get other
folks' thoughts about what these paragraphs should contain so as to increase
the breadth of the insight these paragraphs will contain.
Thanks in advance....
Steven Buss
sbuss@xxxxxxxxxxx
Walnut Creek, CA, USA
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