Improving profitability of candles

[numbertea]

My system uses short, 4 to 8 bar downtrends and uptrends, then a reversal candle pattern, then a confirmation day for the pattern. I achieve good percentages of stock price moving in my direction but the confirmation day eats into the trade's profitability. Is there any other way to maintain the good trade percentage without waiting for the confirmation day completion? I EOD trade only so I can't use intraday data at this time. Should I consider market ocsillations or only trade on double or triple tops and bottoms? I want to catch a trade once every 5 days or so.

Also, I was thinking of trading my system with weekly bars and use the leverage of options. Is there any advice specific to weekly candles that I should be aware of?

Thanks for any advice.

 

[wackypete2]

Just a suggestion, but you can try opening 1/2 your regular position before waiting for a confirmation day, then open the other 1/2 after a confirmation day. If you get stopped out early in the trade you are only out 1/2 your full position but once a confirmation day occurs you will be in for a full position.

Play around with it for a while to see how it would work with your set up.

Peter

 

[numbertea]

Haven't run the numbers on that yet but I suspect only a small percent monthly gain. Not to be greedy but I am always looking to improve. Thanks.

I am still looking for the answers, I know somebody has them, until I find them I will test and test again.

 

[Pazienza]

Have you tried broadening your approach to more of a situational one? Meaning, using the candle more as a trigger to tip you off to an entry based on a story?

 

[numbertea]

I have been adding to the entry signal side of things incorporating the "story" as it could be called. I use the candles as my entries combined with the bigger picture and I have been staring to find out that some candle patterns can achieve great percentages even without the confirmation bar while others are less likely to be as good. With more work the plan seems to be crystalizing, but I've still got a lot to do, thanks for the insite.

 

[Pazienza]

I have been adding to the entry signal side of things incorporating the "story" as it could be called. I use the candles as my entries combined with the bigger picture and I have been staring to find out that some candle patterns can achieve great percentages even without the confirmation bar while others are less likely to be as good. With more work the plan seems to be crystalizing, but I've still got a lot to do, thanks for the insite.

Sounds like you're taking a good approach. Just a suggestion for a set up you might like to investigate:

Wait for a period of some consolidation following a definite move into it. You will often see the extreme of the consolidation defined by weak reversal such as a crappy pin bar / hammer / etc (crappy might mean small, poor close, at no particular area of S/R etc_.

Fade the bar - ie, don't take it as a reversal, use the break of the tail to confirm continuation of the prior trend.

This set up does extremely well for me, although it is crucial that you trade in the direction of the prior trend, that the bar is weak (as a reversal) and that it marks an extreme point relative to the period of consolidation.

I find that waiting for a bar "confirmation" makes this kind of breakout trading very reliable. I find certain instruments very "trendy" intraday and this is ideal for them.

I normally use 15 and sometimes 5 minute charts for this.

 

[Joey25]

My system uses short, 4 to 8 bar downtrends and uptrends, then a reversal candle pattern, then a confirmation day for the pattern. I achieve good percentages of stock price moving in my direction but the confirmation day eats into the trade's profitability. Is there any other way to maintain the good trade percentage without waiting for the confirmation day completion? I EOD trade only so I can't use intraday data at this time. Should I consider market ocsillations or only trade on double or triple tops and bottoms? I want to catch a trade once every 5 days or so.

Also, I was thinking of trading my system with weekly bars and use the leverage of options. Is there any advice specific to weekly candles that I should be aware of?

Thanks for any advice.

Try to think of why the market might reward you for taking the added risk of not waiting for confirmation. A good one to test is entering a trade on a Friday - quite possibly the market may offer a risk premium for carrying a trade over the weekend.

Others include entering on the Thursday before a key economic report or on a lull in volatility - for the latter you will need an adaptive volatility estimator (ATR doesn't cut it).

 

[numbertea]

Those are actually things that I am absolutely incorporating into my system. Especially to trade with the prior overall trend. I can see it clearly on my charts but putting it in terms of conditionals for my system is taking some time. It will be worth it for sure. Thanks for the confirming advice, I believe it is great advice and appreciate good observations being passed along. There are a couple of rare candle patterns that I see occasionally that are not generally written about and as I spend more time observing the charts I make note of them to add them to my bag of tricks, especially the strong or steady 4 or 5 day break outs, if near S/R and followed by long tail dogi they prove worth as much as they move in the reversal most times.

 

[numbertea]

Joey, you're right about the risk to reward there. I am not quite ready enough to consider the day of week or report release date yet but it feels like you are correct and I will definitely target those times when backtesting to see if it is more profitable for me, sounds like it will be as long as I manage my potential losses diligently as many times I notice gaps around those days, I'll have to hope I'm on the right side or I'll crash and burn. Maybe those trades I'll have to money manage separately from the normal days, do you?

 

[Pazienza]

Those are actually things that I am absolutely incorporating into my system. Especially to trade with the prior overall trend. I can see it clearly on my charts but putting it in terms of conditionals for my system is taking some time. It will be worth it for sure. Thanks for the confirming advice, I believe it is great advice and appreciate good observations being passed along. There are a couple of rare candle patterns that I see occasionally that are not generally written about and as I spend more time observing the charts I make note of them to add them to my bag of tricks, especially the strong or steady 4 or 5 day break outs, if near S/R and followed by long tail dogi they prove worth as much as they move in the reversal most times.

Some good observations there.

In terms of candle signals themselves, one thing I have found that has had a dramatic effect is this (you'll doubtless find people scoffing, but this has been my observation and my experience):

When you look at a set up, only take those that are visually strong, meaning be very choosy about the actual bar. Taking the pin / hammer etc as a reversal this time (so just a vanilla play), this might mean larger than average size, strong close in the direction you want to go in, closing above (or below, for shorts) a significant area (round number, support or resistance etc).

Or an engulfing bar, again size, strong close, and crucially engulfing a range rather than just one or two bars.

People say (for example) the close is arbitrary etc etc and yes it is, but my (live and profitable) experience has been that details of this nature add greatly over time to the overall profitability and hit rate.

Good luck with your trading and investigations.

 

[numbertea]

Thanks Pazienza, take it easy, give em hell.

 

[Joey25]

Joey, you're right about the risk to reward there. I am not quite ready enough to consider the day of week or report release date yet but it feels like you are correct and I will definitely target those times when backtesting to see if it is more profitable for me, sounds like it will be as long as I manage my potential losses diligently as many times I notice gaps around those days, I'll have to hope I'm on the right side or I'll crash and burn. Maybe those trades I'll have to money manage separately from the normal days, do you?

Yes, it is the gaps you are aiming to profit from - if the collective fears them and the doctrine is to lighten up before such events, then the chances are that with some careful research and a strategy based on leverage rather than stops, more often that not you can "earn risk" in a shorter period of time than usual.

 

[numbertea]

Leverage minipulation is an excellent suggestion here for covering possible loss. Thanks for great suggestions. I appreciate your help greatly, gives me a lot to consider, good can of worms.

 

[5067545]

My system uses short, 4 to 8 bar downtrends and uptrends, then a reversal candle pattern, then a confirmation day for the pattern. I achieve good percentages of stock price moving in my direction but the confirmation day eats into the trade's profitability. Is there any other way to maintain the good trade percentage without waiting for the confirmation day completion? I EOD trade only so I can't use intraday data at this time. Should I consider market ocsillations or only trade on double or triple tops and bottoms? I want to catch a trade once every 5 days or so.

Also, I was thinking of trading my system with weekly bars and use the leverage of options. Is there any advice specific to weekly candles that I should be aware of?

Thanks for any advice.

jjnlk