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What do you mean exactly by this "Have you ever tried to look at the sensitivity/specificity of using various candlestick patterns on predicting the next day's close?"
Do you mean looking at certain candlesticks and them indicating a biased toward a certain direction and fiding the next days candle agreeing with the previous days bias?
I still have a lot to learn about charting' but I tend to look at a whole group of candles normally. There are obvious ones that stand out to me at times. Hammer bottoms; hanging men (but I have found these to not be as indicative of a downward biased as perhaps a hammer is to a reversal). Wick placement is often key in drawing support and resistance. I have often saved some money or was able to take more of a profit when a stock pulls back and makes a slightly longish wick.
another example; I was looking thou my beyond candlestick book and read a little exerpt on spinning top candles with high volume indicating a emminent price reversal. Most of the time I was accustomed to looking at spinning tops when we were forming a flag of some kind; ie a pause in the current move. These spinning tops often had slightly less volume then normal. The spinning tops the book beyond candlesticks talked about were those with highvolume and it Mr. Nison was suggesting that whomever was buying or selling ie buying at the top or selling at the bottom was getting taken out by the opposite. So basically all the buyers for tops, sellers for bottoms were getting absorbed. Thus leaving room for the stock to rise with any slight pressure for a contertrend move.
example geocities.com (left click location tab then hit enter to view chart) this is a old SLAB chart I have the daily and the 60 min up there if I am not mistaken. If you look at the daily ie on the left of the chart; near october 1st or 2nd you see a couple decent full down body candles followed by a spinning top with volume. A nice example of the spinning top with volume. Looks like it has similar characteristics as a hammer bottom with volume.
Would one of you candlestick folks take a look at CAKE daily chart here and give an opinion...I think it looks really interesting, but don't off hand know if it falls into a typical candle pattern or not... thanks
I'll see if I can get a more detailed description tomorrow but here is a brief one ... as of today ...
Those 2 candle on 9/17 and 9/18 along with the volume suggest that we may reverse here and swing up. Now how far we do thats the question.
Todays candle shows some indecision and a pull back from the high but again concerning canldes this doesnt mean we still shouldnt look for more of a upswing. Now giving the overall feel of the market I would still be careful when taking a buy position in this game.
a close below 25.5 is a pretty sure sign we will head alot lower; use that as support and play off that. I dont play off candles alone I tend to look at support resistance etc alot also. Candles are great too; lets see where this one goes.
Summary: short term trend is up; a negativity in the market might pull this one down thou; also medium term trend is down so it will take alot to change that momentum.
oh here's another one; if we break above the close of today with some nice volume; I forsee us moving a bit higher in the short to medium term.
again to give you an example of those 2 candles on 17/18 look on 9/28/01 those 2 candles over there. Look a bit similar as to what we just had; maybe not as dramatic but similar. Lets keep that in mind and see how it turns out.
Thanks Shawn, Day traded CAKE yesterday a couple of times, with some success. I was just wondering if there was a candle term for the "outside" day that CAKE had on 9-18. I also use support/resistance and volume as a guide. Also news...which in CAKE's case, came in early August with a Listeria scare. Looks like they may be recovering from that now... Cheers Ron
The outside day is known as a bullish engulfing pattern.. However, the 9/18 is not quite tecnically a bullish engulfing pattern. The open on the 18th was a tad bit higher(.05) than the close on the 17th. Still this was a bullish candle and a reversal was in order..
Candlestick analysis in isolation of broader market developments can tend to mislead... it's the flaw inherent in trying to justify just one form of analysis (fundamental vs. technical) as being the one that should be used. The correct answer is both should be used.