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Candlestick Patterns Reliability

Candlestick Patterns Reliability and Profitability

Candlestick Patterns The candlestick patterns performance ranking analysis was presented in 2008 by Thomas Bulkowski in his book "Encyclopedia of Candlestick Charts". His research was performed on a collection of data that contained the prices of the 500 stocks of the S&P 500 index over a period of 10 years, and covered over 100 candlestick patterns. The general statistics presented in the research include performance over time, where performance is best, and where reversal or continuations are most likely to appear in the yearly price range. The work also explores the performance of tall versus short candles, tall or short shadows, and a measure rule to help set price targets. Additional statistics look at volume trend, average volume, and breakout volume. According to Bulkowski, the performance of a surprising number of candles was the opposite of what was commonly believed.

The signals provided by candlestick patterns can be divided into two categories: continuation and reversal. The reversal patterns might indicate a reversal in trend direction, while continuation patterns suggest that after a brief pause the current trend might continue in the same direction. How reliable are candlestick patterns? It is important to know which patterns are more reliable and which are less.

The reversal candlestick patterns are supposed to identify market sentiments changes, and signal current trend reversal. False prediction happens when the reversal does not occur and price continues moving into the same direction. The continuation candlestick patterns usually appear when the current price trend temporarily retreats or pauses. Continuation patterns indicate that a period of market uncertainty might be over and the price is ready to resume the current trend. The pattern reliability is the number of successful prediction divided by the total number of the patterns in a certain wave's direction. has researched and analyzed about six hundred thousand stock market daily and weekly candlestick patterns over a period of more than thirty years. Across this period, our system identified almost seven hundred thousand daily, weekly, and monthly waves in order to find reliable bullish and bearish reversal and continuation patterns. Our analyses were done in conjunction with other technical indicators and signals to find any conditions that may improve the candlestick pattern signal's reliability. We compared the performance of different candlestick pattern's trading techniques to find the most profitable candlestick trading strategies. To evaluate the trading technique profitability, we use the average historical Gain/Loss ratio. All our candlestick pattern analyses are provided in daily and weekly time frames.
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Warning: presents weekly analysis. Technical indicators and trend parameters are calculated for the close of business day indicated on the top right corner of the screen.