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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 bearish three-line strike candlestick pattern is another well-performing candle for the few samples I uncovered. Out of over 4.7 million candle lines searched, I found just 85 of them.
Thus, the statistics and conclusions drawn from those numbers may change with additional samples. Often, the best performing candles are those that you can't find (they don't occur frequently),
and since you can't find them, reliable testing is impossible. Drawing conclusions from what appears to be top-rated performance is risky and should be avoided. In other words, this candle
doesn't perform as well as the numbers suggest.
The bearish three-line strike is supposed to be a bearish continuation pattern, but testing shows that it acts as a bullish reversal 84% of the time. That places its performance rank at 2,
where 1 is the best performing. Overall performance ranks first, too, meaning that once the trend reverses, it tends to continue trending.
Important Results
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Theoretical performance: Bearish continuation.
Tested performance: Bullish reversal 84% of the time
Frequency rank: 94
Overall performance rank: 1
Best percentage meeting price target: 80% (bull market, down breakout)
Best average move in 10 days: -8.81% (bull market, down breakout)
Best 10-day performance rank: 1 (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.
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 Bearish Three-Line Strike
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Discussion
My testing of the bearish three-line strike candlestick pattern shows that it acts as a bullish reversal 84% of the time instead of the bearish continuation that candle theory suggests.
Unfortunately, with a frequency rank of 94, it will be difficult to find. The overall performance rank is 1, the best out of 103 candle patterns. The 8.81% average drop in a bull market
is well above the 6% that I consider good. That performance also ranks first, but price only meets the target 80% of the time. The price target is the height of the candle projected upward
or downward from the top or bottom of the candle pattern, respectively. Tall candle patterns have a more difficult time meeting targets than do short patterns.
One explanation of why this candle acts as a bullish reversal is that the closing price in the pattern is near the candle’s top. An upward breakout occurs when price closes above the top
of the candle, so it may only take a few days for that to happen. A downward breakout, since price has to drop farther, may be more difficult to achieve.
Identification Guidelines
| Characteristic | Discussion |
| Number of candle lines | Four. |
| Price trend leading to the pattern | Downward. |
| Configuration | Look for three black candles forming lower lows followed by a tall white candle that opens below the prior close and closes above the first day’s open. In other words, the last candle spans most of the price action of the prior three days. |
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.
- Bearish three-line strike candles that appear within a third of the yearly low perform best -- page 759.
- Trade bearish three-line strike candles that appear in a downward retracement of an upward price trend -- page 761.
- Bearish three line strike candles act as reversals most often within a third of the yearly high -- page 761.
Example
The bearish three-line strike candle pattern appears in the red circle on the daily scale. Price forms three black candles, each with lower closes, in
a downward price trend. A tall white candle engulfs the price action of the prior three days. The candle acts as a bullish reversal when price breaks out upward, and closes above the top of the candle
pattern.
-- Thomas Bulkowski
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