The author and developer of StockTradersPlace Ctabs has a background in software development as well as being a private investor/trader. In 2005, the author explored various technical analysis methods in an attempt to find ways to increase trading performance. The journey exposed the author to many different technical analysis approaches and candlestick technical analysis became a focus. Using various books and resources on the topic of candlestick technical analysis, the author developed a software program to examine daily [open, high, low, close] stock price data using 4 years of historical data.

Much experimentation occurred including the use of weekly, monthly and even minute historical data; the analysis of volume; gap up/down analysis; correlation of candlestick technical analysis with other technical analysis methods such as different types of Moving Averages, Moving Average Convergence Divergence, Relative Strength Index, Money Flow Indicator, Bollinger Band Indicator, Stochastic Oscillator, to name just a few. Trend following and trend reversal methods were also explored.

Within the scope of candlestick technical analysis, various candlestick patterns and various tolerances were examined to gauge their effectiveness. By tolerances, we mean things like how big does the candlestick have to be in order to be considered a Hammer. The research and experimentation led to the Feb/2007 completion of the StockTradersPlace Ctabs algorithm which is a specific interpretation of the general candlestick technical analysis method. The software has been used since Feb/2007 by the author as well as a small captive audience of users. In June/2008, development was started on the StockTradersPlace service as you see on this web site.

StockTradersPlace would like you to assess the applicability of Ctabs for your trading. We obviously feel that it is an effective tool which contributes to trading success but you are the ultimate judge. Traders have different risk-reward orientations. Traders have different time horizons for their trades. Traders use different kinds of tools and resources to help with their trading. We invite you to peruse the material on this page as well as the rest of this site and we invite you to explore the Ctabs capabilities.

The Ctabs chart shows [open, high, low, close] price points at the end of each trading day. The green candlesticks are called up candles which occur when the closing price is higher than the opening price. The red candlesticks are called down candles which occur when the closing price is lower than the opening price. The color-shaded portion is called the body of the candlestick. The tails above and below the candlestick body mark the high and low points, respectively. The solid blue line shows the 10-day exponential moving average.

Candlestick patterns can be 1-day, 2-day or 3-day patterns in the Ctabs implementation. For example, a spinning top is a 1-day pattern; a separating lines gapup is a 2-day pattern; a morning star is a 3-day pattern. The actual candlestick patterns are less important that what they signify to the trader. When an Ctabs candlestick pattern occurs, it means there is potential for a trend reversal. Such an occurrence is shown by the use of a signal indicator on the horizontal axis of the chart.

When a signal indicator is shown on the horizontal axis of the chart it means a candlestick pattern has occurred and the trader must watch the stock movement on the next trading day in order to assess whether it is a trend reversal or a trend continuation.

StockTradersPlace Ctabs, being a machine/program trader performing simulated trades based on its Ctabs candlestick analysis, is always in the market with a long or short position. So, when a candlestick pattern has emerged, Ctabs shows a signal indicator on the horizontal axis of the chart and provides action commentary such as "Next trading day, sell if stock closes below $47.87 with a down candle.".

StockTradersPlace Ctabs shows its buy/sell action by marking a B or S on the horizontal axis of the Ctabs chart. In this case, Ctabs would provide action commentary such as "Today, stock was sold at $53.75.". StockTradersPlace Ctabs deems its buy/sell executions at the price point stated based on the assumption that the price point can be obtained by examining the daily [open, high, low, close] data from day to day. Your optimal trading success depends on you carrying out the buy/sell action at the Ctabs stated price points.

There are situations where Ctabs will execute a buy or sell on a day when a candlestick pattern occurs. In such a case, Ctabs might show action commentary as "Today, stock was sold at $47.87. Next trading day, buy if stock closes above $47.75 with an up candle.". The "sold" was executed to fulfil the action commentary from the day before. However, the current trading day results in a candlestick pattern so Ctabs issues the "Next trading day, buy if stock closes above $47.75 with an up candle." action commentary.

A stock's past performance is no guarantee of its future performance. True enough.

The StockTradersPlace Ctabs algorithm was developed using historical data for numerous stocks. The continued use of historical data is important for the Ctabs software. Moreover, historical data also provides benefits for the trader.

The Ctabs chart shows up to 2 years of historical data along with past Ctabs action commentary. From this, the trader is able to peer into the past to examine prior candlestick patterns and corresponding action commentary. With this, the trader can assess the success/failure of previous candlestick patterns with respect to tracking the trend. Even without the Ctabs analysis, the candlestick chart with historical depth provides a basic overall view of the stock performance in the past.

The historical data also provides the basis for the generated reports which show the Ctabs simulated trading performance summary, gain/loss and details. The performance summary can be very useful when comparing stocks traded through Ctabs analysis. The StockTradersPlace top performers page shows top Ctabs performing stocks by percentage gain.

Take a look at the markets page for the major market indices and trader sentiment. That page will give the trader an overall indication of the markets as to whether it is trending up or down. Additionally, Ctabs candlestick analysis is applied to the major market indices to track trend directions.

The simplest way is to follow the Ctabs action commentary as closely as possible. By doing so, your trading action will mimic the machine/program trading which is free of emotional and psychological impact. However, if you are not able or not willing to precisely follow the Ctabs action commentary, you can pick and choose when to follow.

For example, if Ctabs action commentary is "buy" and you see that the stock is in overbought territory, you may wish to ignore that Ctabs action commentary and wait for a better time to enter into a long position with that stock.

For another example, if Ctabs action commentary is "buy" and you anticipate news or events that could impact the stock's near-term price position, then you would hold off entering into a long position with that stock. StockTradersPlace Ctabs utilizes candlestick technical analysis without considering fundamental analysis, news, events or any other factor.

Although Ctabs is always in the money with either a long or short position, you are not compelled to do so. You may have registered accounts in which you are not able to partake in short selling. You may not be inclined to engage in short selling. For the case of only applying Ctabs for long positions, follow the buy and sell action commentary to hold long positions only. On the sell action, you just sell to close the long position without entering into a short position.

It is always prudent to have a stop-loss order on your position. The only question remains - what stop-loss point should you use?

Examine your stock in question to see if the Ctabs action commentary typically prevents you from taking losses beyond your stop-loss tolerance. If so, then you have a suitable stop-loss point that gets you out at your tolerance threshold without being too restrictive such that you get "stopped out" due to volatility. Then the usual Ctabs action commentary should guide you to successful trend following where you may well sell out before hitting the stop-loss. And if there is a sudden large drop in the stock price, your stop-loss covers you.

For example, suppose you followed a Ctabs "buy" action commentary and your stop-loss tolerance is 10%. Take a historical look to see if the stock has price action such that it swings quickly down 10% before Ctabs candlestick analysis has had a chance to issue a "sell" action commentary to get you out of the position. If your stock does not typically bear 10% drops, then your stop-loss point is good to cover an unusual and sudden drop while allowing you to follow the Ctabs action commentary for successful trend following.

In the event that you missed out on a "Ctabs buy", you can still enter into a long position and from there follow the Ctabs action commentary. However, it is likely that you will have missed some opportunity because you are buying into a stock that has already experienced a price rise beyond the "Ctabs buy". A counter-argument to the previous sentence is that the stock is in a longer-term bull pattern, in which case hindsight will tell you that it was perfectly fine to buy the stock after it had risen from the Ctabs "buy" point.

The less guessing way is to follow the Ctabs action commentary as closely as possible. By doing so, not only is your trading action following the machine/program trading which is free of emotional and psychological impact but that you are fully leveraging the Ctabs candlestick technical analysis approach.

If you find yourself "off cycle" to Ctabs, you could just patiently wait for a future Ctabs "buy" action commentary. In the meantime, you can look at other stocks. The StockTradersPlace subscription service provides the ability to monitor stocks within your defined portfolios for buy/sell signals; see the buy/sell list page.

There are too many possible combinations to cover exhaustively, so general scenarios will be discussed in the context of a long position.

For the Ctabs action commentary "Next trading day, buy if stock closes above $25 with an up candle.", you have to look for an opportunity to buy the stock at $25 but only if the stock closes above $25 with an up candle. Buying at a price lower than $25 is more optimal; buying at a price higher than $25 is less optimal.

A relatively safe and easy way is to wait towards the end of the trading day before committing a buy. Towards the end of the trading day, the day's high and low points are likely to be set without further change and an up candle formation should be apparent if indeed the stock is going to close with an up candle. However, the stock price may be far above $25 in which case the buy at the higher price is still valid to satisfy the "buy" action but at a less optimal price point. That is the trade off - safer buy action at a less optimal price point. This is consistent with risk-reward in stock trading decisions. If the price point is too high for your risk-reward ratio, you may elect to pass up on the buy opportunity altogether. Between a lost opportunity versus the risk of a potentially higher real loss, the former may be more acceptable to you.

If the stock opens below $25, look for an opportunity to use a buy-on-stop order at $25 to catch the price on an upward move of the stock price. After you buy, you will want to place your stop-loss order which is always a prudent thing to do for open positions. As long as the up candle formation remains i.e. stock price does not go below the open price, then the Ctabs "buy" action is in good shape even if the closing price is not above $25. If the price is below the open towards the end of the trading day, you can choose to close out the position at a loss because the down candle formation means it is not to be a "buy" action.

If the stock opens above $25, look for an opportunity on a price dip to get the buy at or near $25. Again, place your stop-loss order for downside protection after buying the stock. If the price is below the open towards the end of the trading day, you can close out the position at a loss because the down candle formation means it is not to be a "buy" action.

If the stock opens above $25 and during the trading day it wavers below $25, then you can use a buy-on-stop order to get a buy at $25 as the stock price rises. If your risk level is high, you may buy at the price below $25 and anticipate a recovery rise back towards and beyond the open price above $25.

The scenarios for a Ctabs "sell" are not necessarily a reverse of the "buy" logic. One key aspect is the difference between opportunity loss (if you decide not to buy) versus profit loss or actual loss (if you decide not to sell).

For the Ctabs action commentary "Next trading day, sell if stock closes below $30 with a down candle.", you have to look for an opportunity to sell the stock at $30 but only if the stock closes below $30 with a down candle. Selling at a price higher than $30 is more profitable; selling at a price lower than $30 is less profitable.

A relatively safe and easy way is to wait towards the end of the trading day before committing a sell. Towards the end of the trading day, the day's high and low points are likely to be set without further change and a down candle formation should be apparent if indeed the stock is going to close with a down candle. However, the stock price may be far below $30 in which case the sell at the lower price is still valid to satisfy the "sell" action but at a less profitable price point. That is the trade off. Safer sell action at a less profitable price point. This is consistent with risk-reward in stock trading decisions. If the price point is too low for your risk-reward ratio, you may elect to pass up on the sell opportunity altogether. However, you are passing up on an opportunity to take profit. And you are passing up the opportunity to exit the long position. If that downtrend continues, you will bear a loss in the worst case. Between taking a lower profit (but profit nonetheless) now versus the risk of a loss later, the former may be more acceptable to you.

If the stock opens above $30, you may want to take the profit right away before witnessing the possible outcomes at the end of the trading day. (A) The stock closes with an up candle. (B) The stock closes above $30 with a down candle. (C) The stock closes below $30 with a down candle.

For (A) and (B), you should not have carried out the "sell" action and may have taken profit too soon thereby "leaving money on the table".

For (C), you should have carried out the "sell" action and you did plus you took profit at a more profitable price point relative to the closing price.

Those are the options and your action is largely dependent on your trading philosophy and style. A more conservative style would suggest taking profits when you can. A more aggressive style would suggest waiting for more profits (of course being subject to continued risk).

If the stock opens below $30, you may want to take the profit right away before witnessing the possible outcomes at the end of the trading day. (A) The stock closes with an up candle. (B) The stock closes with a down candle.

For (A), you should not have carried out the "sell" action and you may have taken profit too soon thereby "leaving money on the table".

For (B), you should have carried out the "sell" action and you did plus you took profit at a more profitable price point relative to the closing price.

Those are the options and your action is largely dependent on your trading philosophy and style. A more conservative style would suggest taking profits when you can. A more aggressive style would suggest waiting for more profits (of course being subject to continued risk).

Having covered the discussions on how to achieve Ctabs buy/sell action commentary, the trader may want the ability to have updating of the Ctabs charts within the trading day such that price point progression and candlestick formation can be viewed on a periodic basis (say every minute or every 15 minutes). Such support will be considered by StockTradersPlace if there is sufficient subscriber demand for such a service which will require more intensive server resources in addition to acquiring a real-time stock data feed.

Please visit the subscribe page and see the "What are potential future capabilities?" section. Contact us to voice your feedback on futures.