Success of Japanese Candlestick Patterns?

proftradingjourney

proftradingjourney

I am very intrigued by Japanese candlestick patterns. I read a study from back in 1998 which conducted tests on the predictive power and profitability of candlestick patterns on all S&P 500 stocks from 1992 to 1996, and buy-side returns after adjusting for transaction costs were huge at between 0.56 and 0.76 percent on a 100k trade (trades entered near close and sold in 1/3rds for the following 3 days fyi) resulting in an annually compounded return of between 202 to 259%.

In particular 2 patterns were found to predict future price action correctly 75 percent of the time, the patterns were the three white soldiers and three inside up patterns.

For those of you with experience trading with these patterns as part of your strategy, are they as predictive and profitable as this study suggests?
 
You can look at candlesticks on their own and you can also combine days together to get a type of candlestick. Both those patterns you mentioned when combined are both hammer patterns which I tend to look closely at, as it is a rejection of lower prices.
 
proftradingjourney said:
I am very intrigued by Japanese candlestick patterns. I read a study from back in 1998 which conducted tests on the predictive power and profitability of candlestick patterns on all S&P 500 stocks from 1992 to 1996, and buy-side returns after adjusting for transaction costs were huge at between 0.56 and 0.76 percent on a 100k trade (trades entered near close and sold in 1/3rds for the following 3 days fyi) resulting in an annually compounded return of between 202 to 259%.

In particular 2 patterns were found to predict future price action correctly 75 percent of the time, the patterns were the three white soldiers and three inside up patterns.

For those of you with experience trading with these patterns as part of your strategy, are they as predictive and profitable as this study suggests?
More...


Japanese candlesticks are not a miracle cure-all solution.
Definitely, Steve Nison book publisher is very happy with the free publicity.

You have to use it in conjunction with other things.
 
Last edited:
proftradingjourney said:
I am very intrigued by Japanese candlestick patterns. I read a study from back in 1998 which conducted tests on the predictive power and profitability of candlestick patterns on all S&P 500 stocks from 1992 to 1996, and buy-side returns after adjusting for transaction costs were huge at between 0.56 and 0.76 percent on a 100k trade (trades entered near close and sold in 1/3rds for the following 3 days fyi) resulting in an annually compounded return of between 202 to 259%.

In particular 2 patterns were found to predict future price action correctly 75 percent of the time, the patterns were the three white soldiers and three inside up patterns.

For those of you with experience trading with these patterns as part of your strategy, are they as predictive and profitable as this study suggests?
More...

I read somewhere that the success rate of the candlestick pattern is about 30%. The candlesticks themselves are a very visual and efficient way to see PA but its pattern is really open to interpretation and is not precise or consistent. And just like any technical indicators/patterns, they have to be interpreted within the context of the fundamental factors.
 
Candlesticks were never meant to be used as Nison presented them. Whether by design or not, he didn't translate any of the original texts. Just picked up the patterns and delivered them without any context. He added in some baloney about S/R later, congestion zones, the kind of woolly technical analysis the industry thrives on, but the guy knows nothing about trading and if you want any value out of them you need to dig deep.
 
You must log in or register to reply here.
Back
Top