Reading candles
Pin bar: hammer and shooting star
A candle with a small body and one long wick, showing a price area that was pushed back.
Tested more than once and no dependable profit survived costs.
The tally by a private investor rates hammers only slightly above random and describes single-candle patterns as tending to act randomly. 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
A bullish pin bar (hammer) has a long lower wick, at least twice the body, and almost no upper wick. A bearish pin bar (shooting star) mirrors it. The same shape after an uptrend is called a hanging man. The wick side defines it; the color does not.
What it suggests
Price traveled a long way and came back, which marks rejection of that area for that period.
How to check it
Measure the wick against the body, note the trend before it and the level it formed at, and place the stop beyond the wick.
Common mistakes
- Trading small-timeframe pin bars, which appear constantly.
- Ignoring that a long wick is also a wide stop.
How we will test it
On public price history, never on anyone's account. Until it is done, the note above is all we can honestly say.
- Cases: a pin bar at a swing level on H1 or higher
- Measure: share of cases where price closes beyond the wick's far side first, and average R after costs
- Window: next 1 to 10 bars
- Compared with: the same measure at random bars with similar range
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)
- Bulkowski, thepatternsite.com pattern statistics (US stocks; a private investor's tallies, not peer reviewed; his 'reversal rate' counts which side of a small range price exits, so 50% is the baseline) (abstract or primary page read)
Related lessons
Written in our own words. Education only, not financial advice.