See our Patterns Dictionary for the full list of candlestick patterns.
Check our CandleScanner software and start trading candlestick patterns!
Figure 1. Four-line patterns.
The more candle lines of which a candlestick pattern is composed, the less number of potential occurrences we can expect to find on the candlestick charts. This statement is even stronger when particular candles have some specific requirements, e.g. need to be located in a very special location.
For example, we can intuitively understand, that chance to have three white marubozu candles in a row is rather low, especially on the liquid market.
From the trading perspective, the most useful candlestick patterns are the ones which occurrence is high. The more occurrences of a particular pattern, the more potential trading opportunities. More importantly, the more frequent a pattern is, the more reliable performance statistics may be computed. If we found a pattern, which appeared only three times within last ten years, it is very risky to assume that this pattern is a great trading opportunity, just because these three occurrences performed extremely well. To have more faith in a pattern performance, we need to see much more occurrences, appearing in different market conditions.
In practice, the most useful patterns we can find are among one- and two-line patterns. Although we can find in the literature over a hundred Japanese candlestick patterns, we can limit ourselves to only, for example, ten patterns, which are the most frequent. Then we can measure their performance producing more reliable statistics.
Figure 2. Five-line patterns.
Patterns build of 4 or 5 lines should be seen as an oddity rather than a serious thing to be applied in trading. CandleScanner recognizes in total 3 four-line patterns and 7 five-line patterns.
In CandleScanner software, you can easily not only identify any pattern on the candlestick charts but also measure their statistics like the number of occurrences and performance. You can clearly see that 4 and 5 line patterns are not the ones you want to use.
