In this episode of Truth About FX, Walter gives light on the best ways to better understand Japanese candlestick patterns. He shares some useful books and tips for those who want to trade the Yen. He also shares his personal experience and what he thinks of this trade.
Download (Duration: 03:39 / 4.4 MB)
In This Episode:
00:56 – unreliable
01:18 – totally worthless
02:57 – some ideas
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. How can somebody learn to understand Japanese candlesticks better?
Walter: That’s a really good question, Hugh. I think I can only really speak from my point of view but two things that have helped me the most were the Thomas Bulkowski Books. Specifically, the “Encyclopedia of Chart Patterns”. I’ll link that up in the show notes.
I found some of the books on the Japanese candlestick patterns to be quite, honestly, they were unreliable. What I found was that when I tested those patterns in Forex Tester, they just didn’t work.
I’ll give you an example. There’s these three soldiers pattern where you have like, for example, three bullish candles in a row. Really nice, big bullish candles that close up the high and that’s supposed to be like a trend continuation pattern or whatever. I found that to be totally worthless.
Maybe you can do the opposite and the same thing with the little dodgy where you have these little neutral, really small candle where it opens and closes about the same spot. Looks like a little dodgy, those can be reversals or they can be trend continuation depending on the overall pattern of the candles around there.
Unfortunately, I didn’t find any of the pure Japanese candlesticking resources very useful. What I did find most useful was to simply find those patterns that Bulkowski identified and then I tested them in Forex Tester. Just spending time in Forex Tester, you’ll probably find some that you’ll notice.
For example, that happened with the Acapulco trade — and I can put a video in the show notes on the Acapulco trade — but that’s how that came about. I just noticed in Forex Tester, I would see this pattern over and over again.
I thought, this has got to go. This is a trend continuation and that’s how that came about, was just seeing it happen over and over again. That’s what I would say. I’d say, make your own decisions and find out what works for you.
I have to say, a lot of those Japanese candlesticks books are not as nearly as good — at least from my point of view as the Bulkowski books. I would stick with the Thomas Bulkowski books and he has data on stocks.
What I had to do is when I first started trading, there was one forex book and there was a lot of stocks technical, technical analysis of stocks books and Bulkowski was the one that really helped me the most, that “Encyclopedia of Chart Patterns”.
He has several out there and that will give you some ideas on what sort of patterns you might want to test. That is how I did it so maybe that will be helpful for some people.
Hugh: Okay, cool. That’s a great advice. Sometimes, people write books and they don’t really test it so it’s good to test it yourself.
Walter: Exactly. Thanks, Hugh.
Hugh: Okay. Thanks, Walter.