Bulkowski’s Below The Stomach

Written and copyright © 2008-2009 by Thomas N. Bulkowski. All rights reserved.

In my book, Encyclopedia of Candlestick Charts, pictured on the right, I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines in the tests.

The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines, performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators), and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy by clicking on the above link.

Below the stomach candlestick is the inverted variety of the above the stomach pattern, only below the stomach does not perform as well. Below the stomach acts as a bearish reversal of the up trend just 60% of the time. The overall performance ranks 59th, or about mid list where a performance rank of 1 is best out of 103 candlestick types. My guess is this candle pattern works best as an upward retrace in a downward price trend. That way, price rejoins the downward movement of the primary trend after the breakout.

Important Results

Theoretical performance: Bearish reversal Tested performance: Bearish reversal 60% of the time Frequency rank: 38 Overall performance rank: 59 Best percentage meeting price target: 60% (bull market, up breakout) Best average move in 10 days: 4.81% (bear market, up breakout) Best 10-day performance rank: 32 (bear market, up breakout) All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.

Below The Stomach

Discussion

Below the stomach candle pattern is a disappointing candlestick when compared to its sister, the above the stomach pattern. Below the stomach functions as a bearish reversal 60% of the time. The overall performance rank is 59, well down the list from the candle with the best performance rank, 1. However, the pattern does appear frequently, ranking 38.

The best average move 10 days after a breakout is a rise of 4.81% in a bear market, scoring a rank of 32 in the process. The rise also falls short of the 6% or higher moves that I like to see. That suggests that once price breaks out, it trends but not for too long.

Identification Guidelines

Three Trading Tidbits

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book where the tips appear.

1. Below the stomach candles that appear within a third of the yearly low perform best -- page 111.
2. Channels can help predict turning points -- page 112-114.
3. Volume gives performance clues -- page 112.

Example

The chart of 3M appears on the daily scale. Circled in red is the below the stomach candlestick pattern.

The uptrend leading to the start of the pattern lasts for just a few days before the tall white candle shows. Following that, a black candle with its opening and closing prices appears, showing a body below the mid point of the white candle from the day before. Price trends horizontally for a week after the below the stomach candle before making a straight-line run down.

The setup shown here, an upward retrace in a downward price trend, is the preferred one. When price breaks out downward (which means a close below the lowest low in the candle pattern), price rejoins the downward primary trend already in progress.

-- Thomas Bulkowski