Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30 years of stock market experience and widely regarded as a leading expert on chart patterns. His four books, including the best selling Encyclopedia of Chart Patterns, have been translated into seven languages. He may be reached at

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Bulkowski's Short White Candle

Market

Industrials (^DJI):

Transports (^DJT):

Utilities (^DJU):

Nasdaq (^IXIC):

S&P 500 (^GSPC):

As of 02/06/2012

12,845 -17.10 -0.1%

5,334 -34.68 -0.6%

450 -1.41 -0.3%

2,902 -3.67 -0.1%

1,344 -0.57 0.0%

YTD

5.1%

6.3%

-3.2%

11.4%

6.9%

Tom's Targets Overview: 02/03/2012

13,100 or 12,400 by 02/15/2012

5,500 or 5,150 by 02/15/2012

470 or 440 by 02/15/2012

3,100 or 2,800 by 02/15/2012

1,375 or 1,300 by 02/15/2012

Test Portfolios and CPI

Indus. strength: 1.8%

Mutt Losers: None YTD

Mutt Winners: 2.3%

Wilder RSI: None YTD

CPI:

on 12/20/2011

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 name of this candlestick describes its appearance: short and white. It acts as a reversal about 52% of the time and it is common with a frequency rank of 54. That is mid list. Performance is dreadful, ranking 85 out of 103 candle patterns, when a rank of 1 belongs to the best performing candle.

Important Results

Discussion

Identification Guidelines

Three Trading Tidbits

Example

Short White Candle: Important Results

Theoretical performance: Reversal or continuation (indecision)

Tested performance: Reversal 52% of the time

Frequency rank: 54

Overall performance rank: 85

Best percentage meeting price target: 95% (bull market, up breakout)

Best average move in 10 days: -2.62% (bear market, down breakout)

Best 10-day performance rank: 61 (bull market, down 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 White Candlestick

Short White Candle: Discussion

In theory, the short white candle cannot make up its mind between a reversal or continuation of the existing trend. In the real world, it performs as a reversal 52% of the time, which is close to the theoretical indecision.

The candle appears less often than you might think, ranking 54 (mid way down the list of 103 candle patterns). Once price breaks out from the candle (a close either above the top or below the bottom of the candle), then price doesn't move far. The drop in a bear market is just 2.62%, well below the 6% move scored by the top players. The overall performance rank is 85, which is poor. Nevertheless, the one redeeming quality is price almost always meets the measure rule target (the height of the candle added to or subtracted from the breakout price for up/down breakouts, respectively). The best performance over 10 days ranks a dismal 61, where 1 is best.

Short White Candle: Identification Guidelines

Characteristic	Discussion
Number of candle lines	One.
Price trend leading to the pattern	None required.
Configuration	A short candle with shadows shorter than the body.

Short White Candle: 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.

Short white candles that appear within a third of the yearly low perform best except after downward breakouts in bear markets -- page 165.
Short white candles taller than the median show price that moves significantly farther after the breakout than those shorter than the median -- page 165 - 166.
The candle frequently breaks out upward -- page 167.

Short White Candle: Example

The short white candlestick on the daily scale

No one cares about short white candles, but they do hint that the buying demand or selling pressure is waning. The day before the short white candle appears at A, a tall white candle prints on the chart, suggesting a powerful move underway. When the short white candle shows, the bulls and bears are almost evenly matched, but the bulls win out because the candle is white and not black. In this case, a small gap attests to the buying demand powering the stock higher but the short candle size is a clue to a potential reversal.

That happens a day later when a tall upper shadow pokes out from the next candle. Price declines for several days after that.

-- Thomas Bulkowski