Profitability of the bullish kicker candlestick pattern

A bullish kicker is signal is shown on the left. 

It shows a change in sentiment on what the buyers and sellers feel about the stock. The first candle is dark (close < open). I generally like see this red candle at the end of a trend. The bullish candle is the green candle (close > open) and the Low is greater than the previous candle's High. This usually marks a drastic change in sentiment regarding the stock. The traders before the green candle were pessimistic about the stock and the sellers were winning. They were successful in bringing the stock down. The kicker candle usually represents a change in sentiment and buyers are back. This may represent a positive announcement by the company.

Quantifying the Bullish Kicker

A bullish kicker is formed when the following conditions are met:

  1. A down trend marked by three down days
  2. The third candle has a close lower than open
  3. The fourth candle open is greater than the high of the third candle
  4. The fourth candle closes higher than the open
Back-testing Bullish Kicker

DataSet : SP500
BackTest Period : 15 years

Buy Signal :
  • Look for 3 consecutive down days 
  • A Bullish Kicker candle is seen on the fourth day 
  • Buy at Open on the fifth day
Sell Signal:
  • Limit order at 1.02 of the Entry Price
  • 2% Stop Loas
Profitability / Performance of Bullish Kicker

Since I am only interested in finding out if this particular signal does act as a trend reversal signal. I am not interested in building a trading system. The best performance measure for this task is the Win-Rate as it represents the probability that my hypothesis is correct.

Number of Trades1,511Winning Trades825Losing Trades686
Average Profit %-0.28%Win Rate54.60%Loss Rate45.40%
Average Bars Held2.9Average Profit %2.18%Average Loss %-3.24%
Average Bars Held2.85Average Bars Held2.96

In the last 15 years there were 1511 instances of the bullish-kicker... that is about 100 every year. That is actually quiet good and sufficient to build a good trading strategy on. The win-rate was ~55%. Another way to look at it is that there is a 54% chance of making a 2% profit and a 45% change of losing 3%. If you did execute on every opportunity presented by this signal, you would have lost out in the end.

The number shown above are adjusted for commission (Interactive Brokers structure) and not adjusted for any slippage

Bullish Kicker Setup Example