Reading candles
What studies say about candlestick patterns
Across published tests, candlestick patterns have not shown a dependable edge after costs.
Tested more than once and no dependable profit survived costs.
Tests on stocks, index futures and EURUSD mostly find no reliable profit once costs are counted; the few positive results are in stock markets and depend on the exit rule. A pattern describes what price just did. It is not a forecast.
What it is
Researchers have tested named patterns on stocks, index futures and EURUSD, with and without trend filters, several exit rules, and corrections for testing many rules at once.
What it suggests
Two tests on stocks found gains under some exit rules and none under others. Tests on intraday stocks, DAX and Bund futures, and EURUSD found no profit after costs. A private-investor tally on US stocks describes single-candle patterns as close to random.
How to check it
Use patterns to describe price at a level the plan already cares about. Judge a plan by its results across many trades, not by how a pattern looks.
Common mistakes
- Quoting an accuracy figure for a pattern without asking what it counts and whether costs are in it.
Claims worth checking
- contradicted Research has confirmed that candlestick patterns have high predictive value. The published tests point the other way for FX and futures; the positive stock results depend on the exit rule.
Sources
- Marshall, Young and Rose (2006), Candlestick technical trading strategies: can they create value for investors? Journal of Banking & Finance 30(8) (citation and headline finding only)
- Duvinage, Mazza and Petitjean (2013), The intra-day performance of market timing strategies and trading systems based on Japanese candlesticks, Quantitative Finance 13(7) (abstract or primary page read)
- Fock, Klein and Zwergel (2005), Performance of candlestick analysis on intraday futures data, Journal of Derivatives 13(1) (citation and headline finding only)
- Orquin-Serrano (2020), Predictive power of adaptive candlestick patterns in forex market: EURUSD case, Mathematics 8(5) (abstract or primary page read)
- Lu, Chen and Hsu (2015), Trend definition or holding strategy: what determines the profitability of candlestick charting? Journal of Banking & Finance 61 (citation and headline finding only)
Related lessons
Written in our own words. Education only, not financial advice.