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Candlesticks

This chapter covers candlestick patterns in Trading Conceiver.

You will learn how to read all information about candlestick patterns and how to trade them, i.e have signals for going long, short or liquidate. You can see when an algorithm is triggered, i.e. it is true, in the charts and in the table. The list of implemented candlestick patterns is also given.

Candlestick patterns in Trading Conceiver

The Candlesticks Branch

Expand the Candlesticks Branch To view the implemented candlestick patterns, in the Composer tab select the branch: 
  Candlesticks
All patterns are listed in alphabetical order. We used the most meaningful word first, to avoid for instance having a lot of patterns beginning with 'Bullish' or 'Bearish'.

The Description Pane

Pattern Description As usual, by selecting one of the trading algorithm, a pattern in this case, a description appears in the bottom left pane.
Drawing of the Pattern
A drawing of the pattern is depicted. This is just an example, maybe the most representative, and you should expect found pattern to differ from this one. For black and white candles, the corresponding colors are used, while a grey color is used when the color of the candle is irrelevant, i.e. when the candle can be indifferently either black or white.
Candles Counting
The candle when the pattern is matched is labeled n; this is the last candle of the pattern. Previous candles in the pattern are labeled n-1, n-2... This counting highlights the fact that, to match a pattern, you have to look into the past, not into the future, and you can say a pattern is found only at the very last candle.
Interpretation
Here you can find how to interpret the pattern, according to the literature. For candle patterns, this is usually a combination of:
  • bullish / bearish
  • reversal / continuation
  • in a downtrend / in an uptrend
Literature Signals
This is what literature usually says about the action to take, i.e. go long, short, liquidate, hold. Do NOT rely on the signals listed here! Decisions are up to you! These are only notes / remainders of what you can find in candlestick bibliography. Any decision is legitimate, even the exact opposite of what is reported by reputable authors. Moreover, a single pattern seldom can give reliable signals; these must always be confirmed by other algorithms.
Hint / Note
Here some notes might be reported. For example, if the first candles of a pattern form another pattern, we document it here.
Parameters
The more input parameters for a pattern, the more flexibility and control the user might have, but, at the same time, the more complicated it becomes to use them. We tried to make pattern matching as easy as possible for the user, so the majority of patterns doesn't require input parameters. However, in some cases, it would be too subjective to introduce a rule requiring an arbitrary value to implement a pattern recognition routine. It these cases we did use some input parameters, so that they could be controllable by the user. Usually, they are percentages, and their meaning is described in this section and, better yet, in the Formulae section. See a more thorough discussion here.
Formulae
Here the precise conditions that must be satisfied in order to match the pattern are listed. These are all and only the conditions we check, i.e. they are necessary and sufficient, meaning all of them must be true, and there are no other checks performed. So this is the real definition of the pattern. Note that it might differ from other authors (see an in-depth discussion here). In order to make this section more readable, we opted for preferring a more natural language instead of real mathematical formulae, unless strictly unavoidable. Otherwise, for instance, instead of 
  n is white
we should have written 
  open(n) < close(n)
Boolean Logic
A candle pattern is true when the pattern is matched. This is the logic used in the Composer. Remember that a pattern is matched at the last candle of the pattern.

How to Trade a Candlestick Pattern

How to Trade a Pattern
Select It
Select the pattern of your choice in the tree and then press one of the selection buttons in the Composer. The pattern will appear in the corresponding logical slot. If parameters are present for the algorithm, choose values you deem appropriate. Don't rely on default values, as there is nothing peculiar in them.
Prior Trend
Trading Conceiver never checks the prior trend when matching candle patterns. However, if you look at the literature interpretations, they are usually based on prior trend; e.g. a pattern could be a bullish reversal of a downtrend. So, if you want to correlate a candle pattern with a trend, you have to use one of the numerous algorithms of the Composer to determine the trend.
Example
Prior Trend Example Just to make an example (an not to suggest a particular choice) let's consider the Matching Low, a bullish reversal of a downtrend. In order to determine if the trend is negative, you could detect whether the Momentum is negative or the Slope of EMA is negative, or any of them. By 'ORing' the two trend detecting algorithms together and ANDing them with the candle pattern, you can define when to go long. Note, however, that literature always refers to the trend prior to the pattern, while the trading algorithm of the example can be true only when the pattern is true, that is at the last candle of the pattern. So the two trend detecting indicators need to be true at the last candle of the pattern, not prior to the pattern. Again, this is just an example, and the combinations are endless. As a variation, you could AND together the Momentum and the Slope of EMA, instead of 'ORing' them.

Output Manipulation

For the checkboxes: 
  NOT
  Step
  Extend
refer to the chapter about the algorithms based on technical indicators.

Candlestick Patterns Are Matched at the Last Instant in Time

Refer to the chapter about the patterns.

In Charts

Refer to the chapters about the algorithms based on technical indicators and about the patterns.
Example
Pattern Description The picture on the side depicts the Morning Doji Star, a three candles pattern, highlighted in yellow. Note that the match is in correspondence of the last candle of the pattern. More precisely, it is located at the Close of the candle, because that's when the pattern is complete.

In Tables

Refer to the chapter about the algorithms based on technical indicators.
Example
How to Watch Where the Pattern is Detected: Table The picture on the side depicts the same pattern as in the previous section. The same considerations apply. The match is in correspondence of the last candle of the pattern. More precisely, it is located at the Close, because that's when the pattern is complete.

Implemented Patterns

The following candlestick patterns are implemented:

  • Abandoned Baby (Bearish -)
  • Abandoned Baby (Bullish -)
  • Advance Block
  • Belt Hold (Bearish -)
  • Belt Hold (Bullish -)
  • Black Candle
  • Breakaway (Bearish -)
  • Breakaway (Bullish -)
  • Counterattack
  • Dark Cloud Cover
  • Deliberation
  • Doji
  • Doji (Dragonfly -)
  • Doji (Gravestone -)
  • Doji Star (Bearish -)
  • Doji Star (Bullish -)
  • Engulfing (Bearish -)
  • Engulfing (Bullish -)
  • Evening Doji Star
  • Evening Star
  • Gap Three Methods (Downside -)
  • Gap Three Methods (Upside -)
  • Hammer
  • Hanging Man
  • Harami (Bearish -)
  • Harami (Bullish -)
  • Harami Cross (Bearish -)
  • Harami Cross (Bullish -)
  • Homing Pigeon
  • Identical Three Crows
  • In Neck
  • Inverted Hammer
  • Ladder Bottom
  • Marubozu (Black -)
  • Marubozu (Black Closing -)
  • Marubozu (Black Opening -)
  • Marubozu (White -)
  • Marubozu (White Closing -)
  • Marubozu (White Opening -)
  • Mat Hold
  • Matching Low
  • Meeting Lines (Bearish -)
  • Meeting Lines (Bullish -)
  • Morning Doji Star
  • Morning Star
  • On Neck
  • Piercing
  • Separating Lines (Bearish -)
  • Separating Lines (Bullish -)
  • Shooting Star
  • Side By Side White Lines (Bearish -)
  • Side By Side White Lines (Bullish -)
  • Spinning Top
  • Stick Sandwich
  • Takuri Line
  • Tasuki Gap (Downside -)
  • Tasuki Gap (Upside -)
  • Three Black Crows
  • Three Inside Down
  • Three Inside Up
  • Three Line Strike (Bearish -)
  • Three Line Strike (Bullish -)
  • Three Methods (Falling -)
  • Three Methods (Rising -)
  • Three Outside Down
  • Three Outside Up
  • Three Stars in the South
  • Three White Soldiers
  • Thrusting
  • Tri Star (Bearish -)
  • Tri Star (Bullish -)
  • Tweezers (Bottom -)
  • Tweezers (Top -)
  • Two Crows
  • Unique Three River Bottom
  • Upside Gap Two Crows
  • White Candle
Not Implemented Patterns
We strive to keep our software as simple to use as possible. For this reason, we are not advocates for a 'the more, the better' philosophy. So we prefer to implement only what we think might be really useful, and not to add as many features as possible just to show off cool capabilities. This applies to algorithms, too. Therefore we intentionally prefer not to clutter the list of candlestick patterns with extremely rare configurations, occurring virtually never, or with patterns mentioned by only very few authors. Even if the effort to implement them would be negligible. Hence we omit the implementation of patterns such as Collapsing Doji Star, Concealing Baby Swallow, Descending Hawk, Hikkake, Kicking. In other few cases, we don't distinguish between some patterns. For instance, 'our' Doji includes the Long-legged Doji, too. In still other cases, we don't distinguish between very similar configurations when there is uncertainty between different authors about their precise definition. For instance the High Wave pattern can be matched using our Spinning Top through an appropriate selection of the input parameters, if you require both shadows to be present.