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Training Session 1: Candles and Price charts

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stephan
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Training Session 1: Candles and Price charts

Postby stephan » Sat Aug 19, 2017 3:30 pm

Welcome to the first crypto trading training of Haasonline.

You have all followed the white rabbit so now the time has come to decide to take the BLUE or the RED pill. Within this training we will be giving you the RED pill and we will be showing you things which you will not read elsewhere.

We are going to get started today with price candles, how they are created and whay they really mean.

[...]

We all stare at them, we all think we understand what is happening... but is this true? Do you really know what you at looking at? Lets find out...

First, what is a price candle? A price candle is a representation of which trades have taken place on the exchange. Try to remember this because i will get back to this later on.

When we review a price candle then we always got a OPENING and a CLOSING price. The space in between the open en close price is called the body of the candle.

Sometimes a price candle can have a HIGH and/or a LOW value. This is telling us that the prices have been higher or lower then the opening and closing prices.

I am sure we all have seen this image somewhere, it shows how a candle has been build up into detail.

basiccandle.png
basiccandle.png (7.69 KiB) Viewed 1123 times


This should be pretty basic stuff for everybody. But you all have taken the red pill so, let's have a look to reality, let's see how this is really done...

I started with saying the candles are build up of the orders progressed by the exchange. This means we can make an image of how a candle gets created.

The following image is showing the so-called "second chart". You can find this as a Widget on the Dashboard and this can show us in high detail how a price candle is created over time.

HowToBuildACandle.png


Of course its just fun to see how this is done, but there is more to this. If you look carefully to the chart then you can see that high and low values are "relative". We just see them as a line on a candle, but they COULD say that the prices have been very high for more then just a few seconds. We do not know this, we can not directly see this.

This is very important to realize... price candles are relative, they are in essence nothing more then a way to show us what has happened. But you should not fully trust them. They lack the high details to really show us what is going on.

Wow, those are some impacting words. But hold on. You are in the matrix right now and more is yet to come...

Let me ask you all a question (do not answer this, only in your mind)

When you are trading, which prices do you use? Are you assuming to use closing prices for your backtest?

I can tell from all what i have seen that 99.9% of all the people and companies out there are using the closing prices.

This is the biggest mistake made. It happens everywhere but using closing prices is very wrong.

Think about it... a price candle is build up based on the orders which have been filled at the exchange. It does not care (or display) what kind of order it was. So again using price candles we are NOT seeing what is really happening.

Let's have a look to this.. because words are only words and seeing is believing.

These are 2 price charts showing EXACTLY the same data, one is showing a normal candle chart and the second one is called a spread chart. On the spread chart we show the orderbook prices, the ASK and BID prices. The empty space in between is the price spread.

spread6.png


This spread chart here proofs again that the price candles can not be fully trusted. If you would apply the closing prices on your backtest then you will be wrong.

Let's have a better look to this. In the example shown above we saw Bitfinex. Bitfinex which has a higher volume, so logic says that if you take alt-coin or a lower volume market this effect of the spread should become worse...

lowvolume.png


It is! It damn is... The impact of the trading volume on the market is massive. The lower the volume the bigger the spread and the higher the volume the smaller the spread.

Many people have asked us at Haasonline why our backtesting is so negative compared to others. This is why. We have a record of the orderbook of the past and we are using the true asking and bidding prices. As a result the backtest give a more negative picture of what would have happened.

This is the reason why we got a switch for backtesting inside on our Settings page in the Haasbot. If you disagree to this story here of using asking and bidding prices then you can setup the Haasbot so it uses the closing prices for backtesting.




In conclusion, we can say that a price candle is a true representation of what has happened on an exchange. But what we see should never assume it to be perfect and leading. It's a representation, its relative.


I hope you are all enjoying this training so far... its a lot to take in. But for this training, we will take one more step. We are going to have a look at the different chart types too.

We now know price candles are just a representation, its relative. Of course, this is nothing really new, this is known already ever sinds they are created.

This is EXACTLY why we got different charting types. Its a way to make the representation better, more insightful so the say.

Let's have a look to what this means... let's grab a few charting types and let's see how they have done this.

candlehlc.png


Pretty simple, is it not? You take the candle chart and play around with the opening price and things suddenly can look a lot better.

There are charting types which really push this, like Heiken Ansi...

heiken.png


So what it all comes down to, it a matter of taste and feeling. If you do not like to watch candle charts then you can also use line chart like these. Or maybe you prefer the red-white candles...

charttypes6.png


There are a few more charting times which i am not showing. Like a Renko chart. Within this type of charting the timeline has become relative and it becomes more about the candle patterns.

You will not find Renko charts inside the Haasbot because we can not use them for trading, they are missing a solid timeline.

[...]

Just remember... there are several charting types and it does not matter which one you prefer. The one which feels best for you will do it.

Another fact to remember about this is that most people assume the chart type has a lot of impact on technical analysis. It does not, 90-95% of all the technical indicators are only using the CLOSING price of a candle. Sinds this closing price is never altered in any charting type the impact is very low.

We at Haasonline hope this first training has brought you some new insights into understanding the candle formation and price charting types. Of course, there is a lot more to tell about price candle pattern and technical analysis. But we will get to thost on the next sessions.
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