Summary of Candlestick Backtesting

This post summarizes the candlestick back-testing so far.

To understand the effectiveness / profitability of these signals, I choose to look at two measures of performance.
  • Number of Trades : The number of trades is number of times the particular showed happened during the back-test period. There are two inferences from this number:
    • If the number is small, the results are not statistically reliable.
    • The number provides an insight into the prevalence of the signal. This is important when building a system 
  • Win-Rate : The win rate represents number of times this particular signal was profitable. Looking forward, this can be thought of the probability that this signal will be profitable
The back-tests were done on the SP500 symbols over the past 15 years.

PatternWin-RateNumber of Trades
Bullish Engulfing Pattern45.60%6268
Bullish Harami47.87%3787
Bullish Kicker Pattern54.6%1511


  1. How did you test it?
    Did you use stops, profit targets etc.?
    Did you filter the trades using ranges?

    Please give us your test conditions.

    www.Linetrol .com

  2. Thanks for stopping by and your comments. The test conditions are available in the detailed posts for each tests. Please see those posts

  3. I'm tentative to post my comment because usually I provide criticism with a solution. However today I do not have a solution for my critique. Please don't take this the wrong way; you've done a lot of work and it shows.

    I don't believe that your test scenarios are accurately reflecting the proper use of candlestick patterns. From what I have been taught, 60% of a candlesticks patterns magic comes from where it occurs... not the formation itself.

    Take your hammer scenario as a for instance. A hammer candlestick pattern is absolutely useless unless it occurs in a down trend.

    With this scenario, you are specifying that your backtesting of the hammer only occurs if it's preceded by at least 3 bearish periods (also true with your bullish kicker) prior to the candlestick formation. To the defense of Eastern logic, I have a hard time with defining a trend as as three consecutive candles in any given direction.

    A bullish kicker is a reversal pattern, but is defined in your criteria as a pattern that occurs after 3 bearish periods. To finish my point, does that mean you consider 3 bearish candles a trend and the occurs of the bullish kicker as a potential trend reversal? Also, if a trend is 3 candles, does that make a correction only 2 or 1 candles?

    Thanks for hearing my rant and thank you for posting these findings. Your work is not unappreciated!

  4. Appreciate your comment.

    In my testing, I have used 3 down days as a 'short term' trend. Also, I am looking for a reversal in a short term (usually the next day).