From the November 01, 2008 issue of Futures Magazine • Subscribe!

Money-Making Candlestick Patterns

By Steve Palmquist

Marketplace Books, Inc.

$79.95, 239 pages

Japanese rice traders in the eighteenth century utilized candlestick patterns as a reliable way to predict future demand. Today, traders draw from approximately 60 candlestick patterns to predict market trends. Of those, 12 are considered major patterns, but Steve Palmquist identifies and verifies six of those 12 as money-making patterns in his book, “Money-Making Candlestick Patterns.”

Palmquist begins with a simple history of candlestick patterns and then quickly moves into describing their visual characteristics, explaining their predictive qualities and how to utilize those qualities, to define potential trends. To support his conclusions, and to his credit, he describes in some detail the backtesting he utilized to verify that the six patterns can predict future trends with a high degree of success. His reasoned approach and objectivity give comfort to those who are wary of magic bullets and “guaranteed” gains.

Throughout, Palmquist emphasizes a fundamental truth, “There is no magic to trading. It is about putting the odds on your side.”

This is the essence of his book: If a trader can recognize any of these six candlestick patterns and understands in what environment each pattern produces the best results, the trader will gain an edge. Palmquist succeeds in identifying and explaining the patterns in certain formations on the chart and explains how each of the six trading patterns performs in various market environments. All of his work leads the reader to a practical end: a strategy for trading the six candlestick patterns.

This strategy, which Palmquist refers to as “market adaptive trading” (MAT), has traders focus on identifying key trigger levels and trade with the market. This is carried out in four steps. They are: develop, test, and understand several trading patterns; understand basic market statistics; use trendlines on the Nasdaq chart; and write down your daily plan.

He explains each step and goes to great lengths to identify possible variations in the development of the patterns in different market conditions. Of course, not all variations in different market conditions can be identified. But for those that appear in the book, he explains the potential problems and how to approach them utilizing MAT.

Palmquist’s insight that successful trading is about putting the odds in your favor, flows through the book. His logical and ordered approach transforms the abstract into the concrete; and his discussion of MAT, and how he applies it, gives the reader practical and applicable trading information.

Brandon Jones is an entrepreneur, writer, educator and retail trader. Reach him at brandon@affectwriting.com.

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