Tuesday, May 13, 2008

Counting Candlesticks

As daily trader or scalper you maybe very familiar with the use of candlestick charting especially the formation patterns for example morning star, evening star, hanging man, etc to predict the future movement. However today I am going to discuss about something unusual that not many traders maybe practicing that is counting the candlestick. The idea pop in my mind when I was observing the candlestick chart movement for quite sometimes as I discovered that there are common numbers of candlesticks count that goes with the technical indicators of MACD and slow stochastic behavior

For example in my observation there 2 candlesticks will be formed when only slow stochastic go against the MACD and 5 candlesticks if both of the indicators move in the same direction. See on the chart below…

Notice the above chart when MACD and Stochastic move in the same direction at least 5 or more candlesticks are formed either direction. And if stochastic move in the opposite only 2 candlesticks are created.

Even though there are times that it may not be same number of candlesticks but in general it does follow my observation experience. You can try to observe them to confirm my discovery.

As a result of this observation I have come to one conclusion that sometimes I will use the 2 to 5 candlesticks counting standard to set my target profits. The reverse also can be true when you think about setup place after 2 or 5 candlesticks has been completed. Remember that there is relationship between the parallel movement of MACD and Slow stochastic in order to get the right number of counts.

Let us experiment with the GBP-JPY chart let in the monthly time frame. Notice that MACD is still going down and Slow Stochastic is moving upwards direction so we are expecting 2 white candlesticks to represent the correction by slow stochastic after the month of May ended. The second candlestick is now still have black body due to retracement but we are expecting it to turn white until the end of May. Let's see ;)

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