Michael C. Thomsett, our regular contributor in the area of Options and Trading, has just created a new course on Global Risk Academy - Profitable Trading Strategies Using Candlestick Charting and we want to ask him what is it all about and how this course will benefit our members.
1. Why and how this course will help both beginners and experienced investors in generating wealth?
The essential information about candlesticks is designed to identify specific patterns in price, and their meaning in terms of likely trend development. Trends may continue or reverse, and dozens of candlesticks distinguish these trend patterns.
In addition to the specific patterns that candlesticks present, they are valuable as confirmation tools for other traditional technical signals. These include well-known signals like double tops or bottoms, head and shoulders, price gaps, and moves above resistance or below support.
2. What is the basic advantage of the candlestick?
Signals come in many shapes and sizes. However, when a signal occurs in close proximity to resistance or support, the candlestick is especially worth paying attention to. At these proximity levels, reversal is at its highest likelihood. However, if price moves through these boundaries and is confirmed by continuation candlestick signals, then a new trading range is also strongly forecast.
Candlesticks offer an advantage over other technical signals. The combination of a daily trading range represented by the size of shadows, with the breadth between opening and closing prices represented by the real body, present a compelling visual summary of the nature of current price movement and likely next step.
3. In general terms, what do most traders miss on the candlestick chart?
The candlestick has become commonly used as the default formation for price charts. Even so, while most traders understand the basic meaning of candlesticks based on real body color and size, the deeper meaning of specific signals is not widely understood.
Every reversal and continuation candlestick – when confirmed – forecasts a specific price reaction. Some candlesticks are reliable up to 80% of the time in terms of how reliably they forecast price changes. So combining reliability with proximity to resistance and support, a signal confirmed by other signals is a valuable tool for timing of trade decisions. This is a body of information that many traders have not yet mastered.
4. Does knowledge of candlestick formations really improve timing and profits on trades?
Yes. Observation of price behavior reveals that strong angle and speed of a trend is likely to be matched by strong candlestick signals and confirmation; and that weak angle and speed of a trend often is followed by weak signals and potential failure of what those signals forecast. So the whole picture – preceding trend, signal, and response – is all related and ties together.
A flaw in many forms of analysis is to look at signals by themselves, and without considering the behavior of the trend beforehand or proximity of a signal to resistance or support. This in-depth analysis not only increases confidence in timing of entry and exit, but also helps explain false and failing signals.
5. What evidence can you offer to explain how candlesticks are so successful?
I conducted a two-year study in a virtual portfolio, based on options trades and with timing relying on candlestick reversal and continuation signals. This study was extensive, with 578 trades opened and closed. Of those, more than 91% were profitable. And the average rate of return was 35% per year. An assumed portfolio of $100,000 grew by more than $75,000 in this experiment.
The details of this, accompanied by the theory behind it, relied on the strength of 10 highly reliable candlestick signals and confirmation. It is documented in a paper being published later this year, “Signal correlation applied to charting techniques: Conditions to generate consistently profitable trades.” This is being published in the peer-reviewed Journal of Technical Analysis (JOTA).
6. How are candlestick signals used together with other technical signals?
Emphasis on price signals is understandable, since price is of primary interest to all traders. Price signals and confirmation are always the starting point. However, price is also affected by signals found in other, secondary technical signals, which further provide strong forms of confirmation in both reversal and continuation forecasts.
These non-price signals include signals relating to volume, moving averages, and momentum (a test of the speed and strength of price movement but not direction). When candlestick chart analysis is combined with these other types of signals, traders gain great advantage in the entry and exit of trades. If based on an understanding of candlesticks as the starting point in price behavior and trend strength (or weakness), the overall experience and timing of trades will be vastly improved.
Please check out the course via the link below
Important: Use Coupon Code INTRO during the checkout to get $50 off the price. This code is valid till September 1st 2015 only.
When you enrol in the course now, you will get an additional bonus - "The Options Alchemist "- a book of Michael C. Thomsett