Bulkowski’s Homing Pigeon

Written and copyright © 2008-2010 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.

The homing pigeon is an interesting name for a candlestick. This candlestick is an inside day, something that traders using traditional western methods might recognize. However, the identification rules do not mention shadows, so it is possible that some homing pigeons are not inside days at all.

The homing pigeon is supposed to act as a bullish reversal, but testing found that it performs as a bearish continuation 56% of the time. That is what I call "near random" because you won’t be able to tell the breakout direction with any certainty. Despite the poor reversal rate, the overall performance is quite good, ranking 21st, suggesting that the post breakout trend can be a worthwhile move.

Important Results

Theoretical performance: Bullish reversal Tested performance: Bearish continuation 56% of the time Frequency rank: 34 Overall performance rank: 21 Best percentage meeting price target: 68% (bull market, up breakout) Best average move in 10 days: 4.76% (bear market, up breakout) Best 10-day performance rank: 33 (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.

Homing Pigeon

Discussion

As I mentioned in the introduction, the homing pigeon acts as a bearish continuation 56% of the time when it is supposed to be a bullish reversal. Thus, performance is near random. With a frequency rank of 34, it is a plentiful candle, so you should have no trouble finding it nesting in the treetops. The overall performance rank is 21 and that suggests good post breakout performance.

The best average move 10 days after the breakout is a rise of 4.76% in a bear market. That move also ranks 33rd where 1 is best out of 103 candlestick types. However, a good move would be 6% or more.

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. Homing pigeon candles that appear within a third of the yearly low perform best -- page 421.
2. Select tall candles -- page 421-422.
3. Reversals from homing pigeons occur on the right of an inverted and ascending scallop -- page 422-423.

Example

The chart shows a homing pigeon on the daily chart, circled in red. The first candle is a tall black one that appears in a downward price trend. The second day is also a black candle, but it is smaller and fits inside the body of the first black candle. Together, they make up the homing pigeon candle pattern.

The breakout from this homing pigeon is downward when price closes below the lowest low in the two-candle pattern. The decline is brief, lasting one day and forming a southern doji. That doji acts as a reversal and price rises in a sort of V-Shaped pattern.

-- Thomas Bulkowski