2011issue C1124-27
Grading candlestick signals by frequency, trend, and breakout
A historical candle review first dropped rare shapes, then labeled each remaining setup by inbound-trend and breakout-close. Editorial reading treats engulfing pairs and doji lines as directional hypotheses that still need a specified close beyond the group.
- A rarity-filter ranked occurrence across 500 stocks over 10 years and discarded the less frequent half of 103 catalogued candles before any scoring.
- An upward breakout-close is a close above the pattern high, and a downward breakout-close is a close below the pattern low, except on unusually tall formations, where the last bar was the test.
- A continuation leaves in the same direction as the inbound-trend; a reversal leaves the opposite way.
- Bearish-engulfing, dragonfly-doji, long-day, and marubozu lines were scored only as trend-plus-breakout hypotheses, not as standalone marks.
What the archive counted
The evaluation scanned more than 4.7 million price bars and tracked 103 candle patterns. Occurrence was ranked across 500 stocks over 10 years, and the less frequent half of that catalogue was discarded before any later score. That cut is the rarity-filter: a frequency screen that keeps only the more plentiful shapes for inspection.
Among the remaining plentiful candles, ranking combined a reversal-or-continuation rate rank with a separate rank of the price change measured 10 days after the pattern. The archive facts describe that historical workflow only.
Inbound trend versus the breakout close
An upward breakout-close was a close above the pattern high. A downward breakout-close was a close below the pattern low. On unusually tall formations, the last bar was used for that test instead of the full group high or low.
A pattern was labeled a continuation when price entered from below and left through the top. It was labeled a reversal when the exit opposed the inbound approach. In the fixed vocabulary, inbound-trend is the direction price was traveling when it arrived at the candle or candle group. Continuation is a breakout that leaves in the same direction as that inbound-trend. Reversal is a breakout that leaves the opposite way.
Engulfing pairs and doji lines as tests
A bearish-engulfing setup was read in a rising market as a white candle followed by a black candle whose body overlaps that white body. A close below the group was treated as a reversal. The pair is a directional hypothesis: the inbound-trend is up, and the breakout-close must finish below the group before the reversal label applies.
A dragonfly-doji was identified when the session opened and closed at or near the high and printed a long lower shadow. After an advance, a close below the line was the reversal test. The single line is not the signal by itself. The inbound-trend and the contrary breakout-close complete the hypothesis.
Single-line candles need both sides of the test
A long-day black candle required a body at least three times recent average body height, with shadows shorter than the body. A black marubozu was a tall shadowless black candle and did not need the three-times height rule.
The matching white long-day and white marubozu were used when a declining inbound-trend was followed by a downward breakout. Single-line candles were treated as usable only when inbound-trend and a contrary breakout direction were specified together, not as standalone marks.
All readings on this track · 11 readings
- 1992Constructing signed engulfing and doji detectors
- 1997Candlestick breadth timing on the 1996 S&P 100
- 2002Reading doji and engulfing after extended trends
- 2002A three-lock checklist for doji, gap, and stochastic reversals
- 2002Candlestick reliability after one-day follow-through
- 2004Constructing trendline calls with doji and engulfing
- 2004Doji construction, shadow geometry, and confirmation
- 2011Candlestick signals are not automatic trades
- 2011Breakout side versus catalog labels on finished candle recipes
- 2011Grading candlestick signals by frequency, trend, and breakout
- 2015Constructing candlesticks, doji, and hammer from OHLC