As of 04/19/2024
Indus: 37,986 +211.02 +0.6%
Trans: 15,084 +136.79 +0.9%
Utils: 876 +15.31 +1.8%
Nasdaq: 15,282 -319.49 -2.0%
S&P 500: 4,967 -43.89 -0.9%
|
YTD
+0.8%
-5.1%
-0.7%
+1.8%
+4.1%
|
 39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 |
As of 04/19/2024
Indus: 37,986 +211.02 +0.6%
Trans: 15,084 +136.79 +0.9%
Utils: 876 +15.31 +1.8%
Nasdaq: 15,282 -319.49 -2.0%
S&P 500: 4,967 -43.89 -0.9%
|
YTD
+0.8%
-5.1%
-0.7%
+1.8%
+4.1%
| |
|
39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 | ||
This article discusses a study I conducted about the types of candlesticks that appear the day before price breaks out of a chart pattern.
Having finished two encyclopedias on chart patterns and candlesticks (pictured), I decided to combine the information to see what I could gleam from them.
I used three databases that contain my chart patterns covering price data from 1991 to 2009. I used 1,546 stocks but many of them were the same stock split between the three databases. Not all stocks stretched back to 1991. I found 16,306 (upward breakouts) and 11,815 (downward breakouts) chart patterns which I used in the study. The spreadsheet that accompanies this study shows the entire field of 51 chart patterns and 105 candlesticks tested (some that appear in the list were not tested).
I used each chart pattern and found the breakout then looked at the candlestick that appeared the day before. After that, I simply counted the number of times a particular candlestick appeared the day before the chart pattern broke out. Since multiple candle types can appear on the day before the breakout (like a bullish kicking candlestick and a white marubozu, I included them all in the counts. I split the research into two pieces, upward and downward breakouts, for obvious reasons.
The figure on the right shows an example of an ascending triangle with candlesticks representing the price movement. The breakout occurs when price closes above the top blue trendline. The day before the breakout, at A, price forms a white marubozu candlestick. I included the white marubozu in the count for the ascending triangle. But I also included the bullish kicking candle. That candlestick is a two line candle that appears as B and A. Since the second line of the candle also ends the day before the breakout, it is also included in the count for the ascending triangle.
| Candlestick Name | Frequency |
| 1. Marubozu, opening white | 1,494 |
| 2. Long day, white | 1,393 |
| 3. Doji, northern | 1,386 |
| 4. Marubozu, closing white | 1003 |
| 5. Marubozu, white | 944 |
| 6. Candle, white | 850 |
| 7. Doji, southern | 455 |
| 8. Belt hold, bullish | 438 |
| 9. Hanging man | 397 |
| 10. Candle, black | 243 |
| 11. Marubozu, opening black | 225 |
| 12. High wave | 157 |
| 13. Belt hold, bearish | 149 |
| 14. Doji, dragonfly | 144 |
| 15. Marubozu, black | 129 |
| 16. Doji, gravestone | 108 |
| 17. Marubozu, closing black | 107 |
| 18. Shooting star | 102 |
The above table shows the most common candlesticks that appear in all of the chart patterns I studied.
The frequency is just a count of how often they appeared the day before an upward breakout. I show a list of those candlesticks having at least 100 counts.
As you look down the table, you can draw some conclusions about the results. For example, a northern doji does not signal the end of an uptrend. Since the breakout is upward, the trend continues. In fact, four doji make the list (#3, #7, #14, #16).
A hanging man (#9) is supposed to act as a bearish reversal, but not in this situation. Price cuts the hanging man down and the bullish trend lives to fight another day.
The same can be said for black candlesticks (#10, #11, #13, #15, #17). Black candles, if you go by their black color only, are supposed to be bearish and yet a bullish move follows (meaning price breaks out upward from the chart pattern the next day).
A bearish belt hold (#13) isn't bearish at all, at least not in the 149 patterns that scored upward breakouts.
If you see one of the top four candlesticks in a chart pattern you are following, then price might, just might, breakout upward the next day. The farther down the list you go, the less likely it will be that the candlestick will lead to an upward breakout. Why? Because the candlestick appears only a few hundred times in 16,306 chart patterns. In fact, the top ranked candle, opening white marubozu (#1) will occur just 9% of the time (1,494/16,306).
| Candlestick Name | Frequency |
| 1. Marubozu, opening black | 1,268 |
| 2. Doji, southern | 1,052 |
| 3. Long day, black | 990 |
| 4. Candle, black | 660 |
| 5. Marubozu, black | 635 |
| 6. Marubozu, closing black | 587 |
| 7. Belt hold, bearish | 313 |
| 8. Doji, northern | 275 |
| 9. Candle, white | 146 |
| 10. Doji, gravestone | 125 |
| 11. High wave | 123 |
| 12. Takuri line | 122 |
| 13. Marubozu, opening white | 114 |
| 14. Belt hold, bullish | 105 |
| 15. Doji, dragonfly | 105 |
The above table on the left shows the most common candlesticks that appear in all of the chart patterns I studied, limited to those with counts over 100.
The frequency is just a count of how often they appeared the day before a downward breakout.
The first thing you may notice is that the table is a bit shorter than the prior one. Fewer candles were found that resulted in downward breakouts from chart patterns.
Doji candles populate this list (#2, #8, #10, #15) just as they did the last one. Doji are supposed to represent indecision, the struggle between the bulls and bears for direction. In the case of a southern doji, the candle is supposed to act as a bullish reversal because it appears at the end of a downward price trend. However, the table shows that a downward breakout occurs over 1,000 times in the chart patterns I studied, placing it second in the list.
I find it odd that a northern doji would appear in the list. A northern doji is suppose to appear at the end of an upward price trend and yet price breaks out downward the next day. Apparently, the bears formed a long black candle on the breakout day to undo the rise up to the northern doji.
Also notice the bullish belt hold candlestick (#14). It's not so bullish, is it? If it were bullish, it would not appear in this list. To be fair, many of these candlesticks will not appear the day before a downward chart pattern breakout. That's if you understand that they were found in 11,815 chart patterns. Even the opening black marubozu (ranked #1) will appear just 11% of the time (1,268/11,815).
The following table shows some of the more popular chart patterns and the candlesticks that appear most often the day before upward and downward breakouts from those chart patterns.
For example, a northern doji appears most often the day before an upward breakout from a broadening bottom pattern. A southern doji appears most often before a downward breakout from a broadening top.
Notice how often doji appear the day before a breakout. Their frequency is a huge clue to an impending breakout. If you are dealing with a triangle (ascending, descending or symmetrical), then crack open my book, "Encyclopedia of Chart Patterns, Second Edition" and look at Table x.4 where x is the associated chapter number. At the bottom of the table it shows the average "Breakout distance to apex."
For example, an ascending triangle in a bull market with an assumed upward breakout (which occurs 70% of the time, computed from Table 47.2), the average distance from the start of the pattern to the apex is 61%. You can draw the chart pattern on your chart and judge whether price is about two-thirds of the way to the apex.
If a northern doji appears as the most recent candle, then price just might breakout the next day. That is invaluable information.
For double tops and bottoms, when price approaches the confirmation line, look at the most recent candle then consult the above table or the spreadsheet to determine if a breakout is more likely the next day.
Before you conclude that a northern doji, for example, breaks out upward most of the time based on the above results, be careful. Not shown in the tables or in this research are over 50,000 samples of northern doji that I found. I limited the sample counts to 20,000 in my "Encyclopedia of Candlestick Charts" book and found that 10,214 (51%) had upward breakouts and 9.786 (49%) had downward breakouts. In other words, this research looks at one candle type the day before the breakout and ignores when the same candles appear elsewhere. Drawing conclusions on how often a candle works based on this research could lead to inaccuracies.
-- Thomas Bulkowski
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