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Stocks & Commodities V. 29:6 (24-26, 35): Top 10 Candles That Work by Thomas N. Bulkowski

They’re The Trendiest

Top 10 Candles That Work

Which candlestick patterns trend the most in 10 days? price bars or shorter), their trend often does not lead to a big,

MIKE CRESSY
long-duration move. I would make that statement based on
by Thomas N. Bulkowski working with chart patterns, where the tallest ones outperform
their shorter brethren, but also from testing more than 100

In my last article, I described 13 candlesticks that worked
best as reversal or continuation patterns. That means price
closed above the top of the candle pattern or below the
bottom of it, signaling a reversal or continuation not just
once, but reliably in thousands of cases. However, just because
a candle acts as a reversal 66% of the time doesn’t mean that
price moves far beyond the candlestick boundaries.
This article discusses candles that perform best over time
— that trend furthest — but they may not be good reversal
or continuation candidates.
Start at the beginning
Doing research on candlesticks means making decisions on
how to test them. How do you determine the best performance?
Since candles are often short-duration patterns (most are three
Copyright © Technical Analysis Inc.
candlestick types using daily price data and 4.7 million lines
(a candle line is a single price bar).
I decided to measure the price move from the close of
the day the candle pattern ended (not the breakout) to one,
three, five, and 10 trading days into the future. This article
discusses the 10-day performance results in a bull market. For
details on other varieties, such as bear market performance
over five days, please refer to my book Encyclopedia Of
Candlestick Charts.
Up breakouts:
Collapsing doji star
The top-performing candle with an upward breakout is the
collapsing doji star. I show the ideal configuration in Figure
1. It’s a three-line pattern with an uptrend leading to the start
Stocks & Commodities V. 29:6 (24-26, 35): Top 10 Candles That Work by Thomas N. Bulkowski
of the candlestick. The first line is white, but it can be
tall or short. What matters is that it gaps above the next
candle — a doji.
A doji has no body, meaning that the opening and
closing prices are the same (or nearly so). Often, you
see doji that look like plus signs or crosses on the price
chart but more rarely as minus signs in thinly traded
stocks (called a four-price doji).
The shadows (the thin line on the top or bottom of a
candle, also called wicks) of this doji should not overlap
the shadows of the adjacent candle lines. The last bar is
a black candle that gaps below the doji, like that shown
in Figure 1.
The good news with this candle is that price climbs
an average of 7.32% over the 10 trading days after the
candle ends. If you prorate that for a full year, that’s a
gain of almost 200% using 260 trading days annually.
The bad news is that the gain is probably wrong. Why?
Because I only found 16 examples out of nearly five
million price bars searched. Thus, if you can find the
candle, the performance may not meet your expecta-
tions.
Three black crows
Three black crows is a candle pattern that is easily remembered.
Look for the candle in a rising price trend followed by three
tall black candles, each closing at a new low (relative to the
prior candle). In this case, “tall” means a candle that is taller
than the average candle height over the past week or two.
The last two candles must open within the body of the prior
candle and all should close near the low.
Figure 1 shows an example of what the ideal three black
crows should look like. Note how the candle lines overlap
and trend downward. Since price is dropping in the three-line
pattern, it is easy for price to close below the bottom of the
pattern, staging a downward breakout. Thus, the pattern acts
as a bearish reversal of the uptrend.
However, the best performance, placing second among all
the candlestick types in a bull market, is when price breaks
out upward. Over 10 days, the average gain is 6.95%. Upward
breakouts are rare, happening 22% of the time, but they are
worth looking for.
How often does this candle appear in the wild? It’s not as
plentiful as hair on a gorilla, but it ranks 60th out of 103, where
a 1 ranking is the most plentiful. That’s very good compared
to other candles mentioned in this article.
Bearish breakaway
The bearish breakaway is complicated since it is composed
of five candle lines. Begin with an uptrend leading to the start
of the candle. The first day should be a tall white candle. The
second candle is another white one, but price gaps between its
body and the prior candle’s body. The shadows can overlap,
but the bodies shouldn’t. The middle candle can be any color,
but it has a close that’s higher than the prior candle.
Line 4 is a white candle with a higher close. The final line
Copyright © Technical Analysis Inc.
Collapsing Three Bearish
breakaway
doji star black crows
Concealing Identical
CHARTS BY THOMAS BULKOWSKI
baby swallow three crows
Figure 1: Up breakouts. Here you see the top-performing candlesticks with upward
breakouts.
in the pattern is a tall black one with a close that parks within
the gap between the first two candle bodies. Again, ignore the
shadows of the first two candles when looking for the gap.
Since this is a five-line pattern with strict identification
rules, a guess that it’s rare would be a good one. I found 36.
Upward breakouts from those 36 in a bull market posted gains
averaging 6.66%. It’s likely that additional samples will cut
into that gain, so keep that in mind.
Concealing baby swallow
The concealing baby swallow is another rare candle pattern.
If you want to search for one, begin with a downward price
trend. The first two candles are black marubozu ones, mean-
ing they don’t have any shadows. The third line is another
black candle with a tall upper shadow. The candle gaps open
downward and it trades into the body of the prior day, like that
shown in Figure 1. The last candle in the pattern is another
black one that completely spans (engulfs in candlespeak) the
prior candle, including the shadows.
I found just four concealing baby swallows in the 4.7 mil-
lion lines searched, but the one with an upward breakout in a
bull market did well. The gain averaged 5.92%.
This candle pattern also doubles for one of the five top-
performing candles with downward breakouts, so I count it
twice. Downward breakouts show losses averaging 7.10%,
placing it third on that list.
Identical three crows
Rounding out the top five is the identical three crows pattern,
but it should not be confused with the three black crows. For
the identical variety, look for the candle pattern in a rising
price trend. Then find three tall black candles with the last
two openings at or near the prior candle’s close. I show an
ideal example in Figure 1.
Stocks & Commodities V. 29:6 (24-26, 35): Top 10 Candles That Work by Thomas N. Bulkowski
CANDLESTICK CORNER

Bearish Mat hold Concealing This article discusses candles

3-line strike baby swallow
that perform best over time,
but they may not be good
reversal candidates.
an ideal example of it in Figure 2.
When I tested this pattern, I found that it acted
as a bullish reversal 84% of the time instead of
a bearish continuation as theory suggests. I base
3 white Bullish
soldiers the interpretation on where price closes in rela-
abandoned baby
tion to the candle. Since the candle closes near
the top of the pattern, it is easier for an upward
breakout (close above the highest line) to occur
than a downward one (a close below the bottom
of the pattern). If an upward breakout happens,
then the candle acts as a bullish reversal.
The bearish three-line strike is another rare
candle. I found only 85 of them. Those with
Figure 2: down breakouts. These candles perform best after price closes below the bottom downward breakouts saw price drop an average
of the pattern. of 8.81%. Again, that number is likely to change
with additional samples.

This candle is not as plentiful as three black crows. I found
just 921 of them. Those that broke out upward in a bull mar-
ket (178) gained an average of 5.67%. Most of the time this
candle will break out downward, so it acts as a bearish reversal
79% of the time. An upward breakout would mean a bullish
continuation.
Down breakouts:
Bearish three-line strike
The following candlestick patterns do best af-
ter breaking out downward. The top performer
is a bearish three-line strike candle, and I show
Mat hold
In second place for performance is the mat hold with an
average drop of 7.21%. This candle pattern looks a lot like a
rising three-methods candlestick. The difference occurs with
the gap on the second candle.
In the mat hold, look for the pattern in a rising price trend.
The first candle is a tall, white-bodied line. Bar 2 has price
gapping open upward, but it closes lower. It is a small black
candle that must remain above the prior close. Ignore the
shadows when locating the gap.
The third line in the pattern can be any color, but line 4 is
black. Both candles have small bodies with the closing price
easing lower. The bodies must remain above the low posted
by the first candle.
The last line in the pattern is a white candle that closes
above the highs of the prior four candles. It’s often a tall one
but need not be. I think of the mat hold as a small version
of a rise/retrace/rise pattern. In chart pattern–speak, it is a
miniature measured move up.

Three white soldiers

Three white soldiers is the complement of the three black
crows pattern. Look for three tall white candles to appear in
a downward price trend like that shown in Figure 2 by the
thin price bars. Each candle line in the three white soldiers
pattern must have a higher close and close near the high for
the line. The last two candles must open within the body of
the prior candle.
Downward breakouts from this candle pattern are one-
fourth as frequent as those with upward breakouts. However,
“Give it a rest, Howard. The company will
CONDRON

survive without you for a few days.”

Copyright © Technical Analysis Inc.

Stocks & Commodities V. 29:6 (24-26, 35): Top 10 Candles That Work by Thomas N. Bulkowski
three white soldiers with downward moves drop an average
of 6.41%. That’s quite tasty for a 10-day trip.
Bullish abandoned baby
The last candle pattern in the series is a bullish abandoned
baby. It is another rare one, happening just 293 times in 4.7
million candle lines. Downward breakouts sport average
losses of 6.04% measured 10 days after the candle ends.
With additional samples, I would expect the performance to
deteriorate, so keep that in mind.
For identification, look for the pattern to appear in a down-
ward price trend. The first line is a black candle. The second
one is a doji that gaps below the shadows the two adjacent
lines, like that shown in Figure 2. The final day is a white
candle that gaps above the prior doji.
That’s a wrap
So there you have it, five candle patterns that perform best after
upward breakouts and five that perform best after downward
breakouts. Unfortunately, many of the best performers are so
rare that you are unlikely to encounter them in your normal
trading. My guess is more samples will show that the rare
candle patterns won’t perform as well as in lab tests. Thus, if
you want to trade these candle patterns, then stick with the three
crows, either black or identical, for upward breakouts, and the
Copyright © Technical Analysis Inc.
mat hold or three white soldiers for downward breakouts.
My previous article discussed the best reversal or continu-
ation candles, and this one reviewed the best performance
over 10 days. Can we combine those two features? What are
the top reversal or continuation candlesticks that also lead to
strong trends 10 days later? Answering those questions will
be the subject of my next article.
S&C Contributing Writer Thomas Bulkowski (who may be
reached via email at tbul@hotmail.com) is a private investor
with 30 years of experience and considered to be a leading
expert on chart patterns. He is the author of several books, the
most recent of which is Encyclopedia Of Candlestick Charts.
His free website and blog have more than 500 articles dedicated
to price pattern research and is at www.thepatternsite.com.
Suggested reading
Bulkowski, Thomas N. [2008]. Encyclopedia Of Candlestick
Charts, John Wiley & Sons.
S&C
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