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Why Most Traders Fail With Japanese Candlesticks

Updated on August 3, 2016

Why Most Traders Fail With Japanese Candlesticks

Theodore Kekstadt,

It was in the late 1980’s that Japanese Candlesticks were introduced to the mainstream trading world of the West. As with anything there are pros and cons. There are traders that swear by the uses of Japanese candlestick analysis, and on the other side of the fence are traders that completely denounce any of their applications. Let us examine the main reasons why most traders fail with Japanese candlesticks. The predominant reasons traders are unsuccessful are as follows. Lack of knowledge and experience are the major weaknesses. Use of too many patterns and single candles for trades is a close second. Improper use of time frames for analysis. And finally is the lack of money management, poor discipline, and lack of common sense. A breakdown of these shortcomings will help to demystify this debate of the validity of this type of market analysis. Then you can be the judge whether or not there is validity in this school of Eastern thought or not. Or, if you are a non-believer perhaps a new perspective will be gained to give candlesticks a second chance.

Lack of knowledge and experience can be attributed to many traders’ poor results with Japanese candlesticks. Anyone that has studied accounting knows that if you are not solid in your fundamentals in accounting 101 any future success in this field of study is doomed. The same can be said for this market analysis from the East. Many traders will learn what patterns look like, and use their own interpretations of what the candlestick or candlestick patterns represent. This behavior is exacerbated when the experience with trading markets is minimal as well. Without a solid understanding of Japanese candlestick fundamentals and their proper usage the odds of success become improbable. Most doubters of this school of thought when questioned prove to have a limited knowledge of how to really apply this type of analysis.

Use of too many patterns and single candle setups is another strong reason why traders fail when they try to apply this methodology. True students of candlesticks know that there are only a select group of reversal patterns, continuation patterns, and single candle bars that truly have a strong statistical chance of being the cause to a desired effect. It is similar to playing poker. If you play to many weak hands the only net result is a decrease in ones bottom line. Overtrading Japanese candlesticks is no different. This is a typical flaw of most anti candlestick views. Many algorithms trade against Japanese candlestick patterns and do quite well because they know that there will be traders interpreting things improperly. Survival in the jungle begins with preying on the weak to survive. Trading is no different.

Improper use of time frames distinctly shows who has truly studied and learned the proper way to implement candlestick analysis into ones trading. Intraday traders fall into this category the most. These types of traders rarely use the Monthly, Weekly, and Daily chart to trade off of. Many in this category use the 30-minute chart down to the 5-minute charts. Too many false signals are generated under small time frames. Again, this is a major mistake common amongst those who cannot apply this school of thought. Get this clear in your head right now. The only charts to use for Japanese candlestick analysis are the Monthly, Weekly, Daily, and 60-minute time frames. Any time frame below these will Not work. The harsh reality is that only longer term traders can successfully trade with this analysis. The average day trader on the other hand has no use for candlesticks unless they like the look of the charts. Remember that candlesticks are a representation of price action. Shorter time frames lack the liquidity and momentum to interpret the battle between Bullish and Bearish forces accurately.

Poor money management, poor discipline, and lack of common sense also attribute to a traders inability to profit from Japanese candlestick applications. It does not matter if you have tomorrow’s financial paper today. Poor money management will ruin any trader’s performance no matter what school of thought they apply. Discipline is absolutely necessary in order to have the patience to wait and then act properly when trading candlestick patterns. Common sense is not that common as most people are aware. Trading is a business and it should be treated as so. Sounds sensible, but many traders treat trading as gambling. Another big mistake made by traders of all levels of experience. These weaknesses stand alone. However, when coupled with a feeble attempt of candlestick application disaster is imminent. Any successes are only illusions by fluke of luck.

It is commonsensical why the lack of knowledge and experience end in negative results. Using too many patterns and single candle setups that are not viable is an exercise in futility. Trading candlesticks under short term time frames is not just an error in judgment, but also an obvious sign of a trader’s ignorance to the rules of trading Japanese candlesticks. Poor money management, poor discipline, and lack of common sense arguably are the easiest of all of these flaws for anyone to understand. The good thing is that any trader can change their approach to the application of Japanese candlesticks. That is all that is necessary to achieve a radical difference in the perception of whether or not candlesticks can be used successfully. Dismissal of any of the mentioned weaknesses is truly Why Most Traders Fail With Japanese Candlesticks.

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About The Author

Theodore Kekstadt is the Founder and President of Forex Trading Unlocked Inc., and a veteran trader of the Futures, Forex, and Equities markets. He oversees business operations, partner relations, infrastructure services, and online trading consulting. In 1989 he entered the trading business working as a runner for Donaldson, Lufkin, and Jenrette at the CBOE. The same year Theodore also became a student at DePaul University where he earned a degree in Finance. After half a year at the CBOE the move into the Futures industry was made to the S&P 500 Futures pit at the CME.

In 1991 Theodore began trading 30yr T-Bond Futures and Sugar. By 1994 he was not only trading, but also providing market analysis for an institutional market research firm. By 1998 after almost 10 years of trading floor experience he decided to focus on trading and providing analysis and services to floor traders exclusively. In 2009 things changed.

Forex Trading Unlocked Inc. was created in 2009 as a personal tool. Over the years it developed into a hub for services dedicated to retail and institutional traders. It was through the development of this company that Theodore was inspired to write the book about High Probable Japanese Candlestick Patterns For 21st Century Online Traders, and the methodology to implement the signals generated from these formations.


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