Bulkowski’s Short Black Candle

Written and copyright © 2008-2011 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.

You might think that the short black candlestick would be as plentiful as birds at a feeder, but it is a rare pattern (by my definition, anyway). Using four databases holding 4.7 million candle lines, I dug up just 5,593 of them, which is a lot, but nothing near the tens of thousands that I expected.

There is nothing really remarkable about the short black candle. It acts as a reversal almost randomly, and price does not trend far after the breakout.

Important Results for Short Black Candle

Theoretical performance: Reversal or continuation Tested performance: Reversal 52% of the time Frequency rank: 50 Overall performance rank: 66 Best percentage meeting price target: 95% (up breakout) Best average move in 10 days: 3.61% (bear market, up breakout) Best 10-day performance rank: 49 (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. The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Short Black Candle

Short Black Candle Discussion

The 52% reversal rate is what I call near random, meaning you will probably not be able to tell the breakout direction ahead of time. The frequency rank is 50, almost in the middle of the 103 candle varieties I looked at. Price performance over 10 days ranks it 66, also far down the list of best performers.

Since the candle is short, the price trend after the breakout almost always meets the measure rule target (the candle height added/subtracted from the up/down breakout price, respectively). The best move after the breakout over the coming 10 days averaged just 3.61%, which is well below the 6% to 9% that the best performers show and it places the rank at 49.

Short Black Candle Identification Guidelines

Three Trading Tidbits for Short Black Candle

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. Short black candles taller than the median show price that moves almost twice as far after the breakout as those shorter than the median -- page 157.
2. Short black candles with shadows longer than the median tend to outperform after the breakout -- page 157.
3. Price breaks out downward from the candle most often -- page 159.

Short Black Candle Example

The chart shows a short black candle on the daily scale with a downward breakout. The candle appears as part of a retrace of an uptrend. Taking a wider view, the candle position in the surrounding price landscape reminds me of a mat hold candle pattern. Two days before the short black candle at A is a tall white candle followed by several candles that retrace that uptrend and then two tall white candle resume the upward move. Although the mat hold is a five line candle, these types of measured move up patterns always seem to catch my attention. They represent good short-term moves.

-- Thomas Bulkowski

Copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved. Jesus saves. He uses double coupons.