Candlestick

Patterns
S TAT I S T I C A L E D G E

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 What is this all about?
We all know about the typical candlestick patterns* but are they all equally powerful?

The answer is: „It depends!“

The second best answer is: „Let‘s look at some numbers“

* if not, go see Christy‘s „How to read candles“ course and the candlestick guide

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 References
 Thomas N. Bulkowski – Encyclopedia of Chart Patterns

 Karin Roller – Board Member VTAD (Federation of Technical Analysts), Certified Financial
Technician

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Statistical Analysis I
 By Thomas N. Bulkowski – Encyclopedia of Chart Patterns

 Different market phases (bull and bear market)

 Performance measurements after 2, 3, 5 and 10 days after break of formation (daily chart)

 103 formations have been analyzed

 Some are happening frequently, some are very rare

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Statistical Analysis II
 31% of the analyzed candle stick patterns fail!

 Many are just coin tosses  random results

 Hit rate >60% only 24% of all patterns

 Hit rate >60% and with good frequency: only 6% of all patterns are worthwhile

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Statistical Analysis III
 Those remaining candlestick patterns are
 Three White Soldiers/Three Black Crows In order of highest hit rate
 Bullish/Bearish Engulfing
 Rising/Falling Three Methods
 Morning/Evening (Doji) Star
 Bullish/Bearish Belt Hold
 Above/Below the Stomach

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Symbol Definition
Trend direction
prior pattern Continuation Pattern
Reversal Pattern
Down to Uptrend Uptrend

Reversal Pattern Continuation Pattern

Up to Downtrend Downtrend
Candle body colour

White – bull candle

Black – bear candle
Grey – bear or bull

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Three White
Soldiers
 Three white candles each with a higher close than the
previous one

 Open of each candle is within body of previous candle

 Ideally all candles are of similar size

 Continuation pattern but can also appear as reversal in a

downtrend

Be careful if last candle is small and/or has a long

wick  Bull market: 82%

 Bear market: 84%

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Three Black
Crows
 Three black candles each with a lower close than the
previous one

 Open of each candle is within body of previous candle

 Ideally all candles are of similar size

 Continuation pattern but can also appear as reversal in

an uptrend

Be careful if last candle is small and/or has a long

wick  Bull market: 79%

 Bear market: 72%

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Bullish
Engulfing
 After downward movement

 Big, white candle opening below previous close and

closing above previous open of the black candle

 „white body engulfes black body“

 Bull market: 63%

 Bear market: 62%

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Bearish
Engulfing
 After upward movement

 Big, black candle opening above previous close and

closing below previous open of the white candle

 „black body engulfes white body“

 Bull market: 79%

 Bear market: 82%

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Rising Three
Methods
 In uptrend
 Five candles formation
 Large white candle followed by three small candles (at
least two black candles) staying within the white candle‘s
body
5th candle is a white candle closing above the initial
candle

Continuation pattern similar to a small flag

 Bull market: 74%
 Bear market: 79%

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Falling Three
Methods
 In downtrend
 Five candles formation
 Large black candle followed by three small candles (at
least two white candles) staying within the black candle‘s
body
 5th candle is a black candle closing below the initial
candle

Continuation pattern similar to a small flag

 Bull market: 71%
 Bear market: 67%

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Morning
Star
 After downward movement

 Three candles formation

 Black candle followed by a small, lower candle followed by a

bigger, higher white candle

 Third candle closes above middle line of first candle

 Ideally gaps on both sides of the small black candle (star)

If the small candle is a doji than the pattern is called
Morning Doji Star.
Combinations with two stars are not valid (also dojis)  Bull market: 78%

 Bear market: 65%

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Evening
Star
 After upward movement

 Three candles formation

 White candle followed by a small, lower candle followed by a

bigger, higher black candle

 Third candle closes below middle line of first candle

 Ideally gaps on both sides of the small black candle (star)

If the small candle is a doji than the pattern is called
Evening Doji Star.
Combinations with two stars are not valid (also dojis)  Bull market: 72%

 Bear market: 72%

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Bullish Belt
Hold
 After downward movement

 Big, white candle opening with a gap down

 Candle closes at or near high (no or small upper wick)

 Ideally candle has no lower wick

 Bull market: 72%

Difference to White Marubozu: previous trend
 Bear market: 72%

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Bearish Belt
Hold
 After upward movement

 Big, black candle opening with a gap up

 Candle closes at or near close (no or small lower wick)

 Ideally candle has no upper wick

 Bull market: 71%

Difference to Black Marubozu: previous trend
 Bear market: 71%

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Above the
Stomach
 After downward movement

 White candle after black candle

 White candle open&close at or above the black

candle‘s body middle line

 Bull market: 66%

 Bear market: 67%

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Below the
Stomach
 After upward movement

 Black candle after white candle

 Black candle open&close at or below the white

candle‘s body middle line

 Bull market: 60%

 Bear market: 65%

By Sven Nickel - prepared for The Trading Floor 21.06.2022

Hammer
 After downward movement

 Lower wick twice as long as body

 Upper wick smaller than body

 White hammer more reliable

 Bull market: 60%

 Bear market: 59%

 Time Horizon
Time Frame (Candle) Time Horizon (Forecast)
Three months Three months to one year
One month 1-4 months
One week 1-4 weeks
One day 1-4 days
Four hours 4-16 hours
One hour 1-4 hours
15 minutes 15-60 minutes

Rule of thumb: predictive nature is up to four times of the candle‘s time frame

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Things to remember
 Consider the global market sentiment

 Be mindful of upcoming news

 Always trade in the direction of the overall trend

 A high hit rate does not automatically mean high performance

 Reversals need something to reverse from

 Signals should be confirmed by next candle

 A pattern is just one piece of the puzzle. Add confluences for a high probability entry

By Sven Nickel - prepared for The Trading Floor 21.06.2022

 Congratulations!

You have made it to the end!

Thank you for listening 

Candlestick Patterns S TAT I S T I C A L E D G E S