CandleCode alive!

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The method of constructing weight candles, the best for a particular trading system, was reviewed in the October issue of the journal for 2001, Technical Analysis of Stocks & Commodities. It uses variable coefficients (factors) for the balance of the body and the shadows. In the notation for the construction of the indicator [1], the formula for the weight of the candles will be:

Weight = B x CandleCode-b + + U x CandleCode-u + L x x CandleCode-l,

where B, U, L - is not given the coefficients, which are selected in the optimization of the trading system, which uses light to determine Weight trading signals.

It is clear that by choosing different trading systems and applying them in different markets, we will get every time his rule weighting. Arguing about which way to weigh better - useless. CandleCode is good in that it is universal, suitable for all occasions. The financial results of specific trading system can be improved by optimizing the coefficients type indicator Weight. However, these rates will be good for the system is on the market. By the way, after this weighing unambiguous ordering candles already lost (different types of candles can get the same weights).

Again in the arena the bulls and bears

One of my opponents expressed fundamental disagreement with the method. He believes that in fact the upper shadow should be seen as a bear, and the lower shadow - bullish characteristics as candles. This is a significant objection, and it should definitely stop. The view that the upper shadow - bearish, and the lower - bullish, based on the following considerations. Long upper shadow indicates that the bulls are trying to raise the market on the horns, but nothing they have not succeeded. Hence, the market will go down. The long lower shadow suggests that the bears are trying to reset the market down, but got on the nose. Is likely to be upward movement. Specific reason in this. But let's look at the picture. It depicts two candles, different lower shadow. Both are mid-size body and a small upper shadow, but there is a large candle A lower shadow, while the lower shadow candle B is absent. Left of the candle shows possible scenarios of market behavior in the time interval corresponding to each candle. In the first scenario A candle bears are trying to push the price down, but got on the nose. In the second scenario, they got on the nose, harbor and apparently will not rest on our laurels. Despite the undoubtedly bullish candles form A, the second scenario the market is clearly bearish nature. Moreover, it should unfold and serious market down turn. According to one of the basic properties of market charts, breaking the support level, the market should roll up - so that the level of support was the level of resistance. If the bearish trend in the market continues, there will be a new move with a break down of the next level of support and a new roll back up. Which is reflected in the second scenario candles A.

But the main thing is that when comparing options A and B candle shows that, in any case, A is much more bearish than B. This is reflected in their quantitative measurement: A candle code and serial number of the (weight) equal to 1,100,100 = 64 + 32 + 4 = 100, and the spark B: 1100111 = 64 + 32 + 4 + 2 + 1 = 103.