Coding candlesticks into numeric indicators

A candle as a seven-bit score

A candlestick can be represented as seven binary digits: one bit for color and two bits each for body size, upper-shadow size, and lower-shadow size. Those bits are then converted to a decimal candle-code, so one bar becomes a single numeric observation.

How the bits are weighted

Color is assigned the highest weight because it is treated as the primary characteristic. A white candle is coded as 1 and a black candle is coded as 0.

Body-size bits sit immediately after color, and shadow-size bits follow, so larger bodies and shadows receive greater weight within each two-bit field.

The coding is designed so more bullish shapes receive higher decimal values and more bearish shapes receive lower values. Illustrated white or mixed shapes include the codes 126, 91, 69, and 24. Strong bearish shapes include the codes 3 and 6.

Size labels need a cutoff

Small, middle, and large labels for bodies and shadows are set with upper and lower size-threshold values plus decision rules, rather than by unaided visual inspection. The archive states that a statistical treatment of sizes would be the adequate basis for those cutoffs.

Oscillators on the coded series

Once bars are coded, conventional overlays such as moving averages, MACD, and RSI can be computed on the candle-code series. A candle-code-macd uses the conventional length triple 9, 12, 26. A candle-code-rsi is applied to a triple-smoothed candle-code series, which is a smoothed-candle-code used to reduce bar-to-bar noise before the oscillator is calculated.

The archive presents the resulting index-of-candle-strength as using the full open-high-low-close object rather than a single price field, and as a candidate input for mechanical system rules.