Original article:
Investment Candles
Investment-grade candlesticks work as reversal or continuation patterns at least two-thirds of the time (66%), and they are plentiful. By “plentiful,” I mean that I sorted a list of 103 candlestick patterns by how often they appeared in the Standard & Poor’s 500 from August 1996 to August 2006. I split the list and discarded the rare ones. That left just 13 candle types, which I describe here.
Configuration and definition
Before I discuss the performers, let’s review the configuration. Figure 1 shows two candlesticks, one black and the other white. The price bar’s high is at the top of the candle, and the low is at the bottom. Between those two extremes are the opening and closing prices, the order of which determines the candle body’s shade. The thin bars at either end are the shadows or wicks, with a body sandwiched in between. A candle need not have a shadow, and the body can be a flat line as in a four-price doji. In those situations, all four prices are the same.
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PRO REAL TIME FORMULA INVESTMENT CANDLES
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In november 2011’s issue of Stock & Commodities, the power of predicability of such candles is discussed: 10 candles!! wonderful!!
The Eight Best-Performing Candles
Describing my testing methodology is necessary so everyone understands my measurement technique. I looked at more than 4.7 million price bars (candle lines) to identify and track 103 candle patterns. A close above the top of a candle represents an upward breakout. Similarly, a close below the bottom of the candle pattern is a downward breakout. That’s true of most candle patterns except for unusually tall ones, such as eight or 13 new price lines, where I used the last price bar upon which to conduct the up or down breakout test.