Candlesticks are a popular charting tool because they “packs” data recordings into single easy-to-read price bars. The time frame of your choice can easily be interpreted in just one visual look at the chart. All charts on this website use candlesticks. You might agree they are useful for charting but are they useful in making quantified trading strategies? What is the success rate of candlestick patterns?
The success rate for candlestick patterns is high: Among all 75 candlestick patterns, 66% beat the S&P 500 over its holding period (de-trended).
Let’s go on to describe how we calculated the success rate for all 75 candlestick patterns:
What is the success rate of candlestick patterns?
In our recent course about candlesticks, we quantified all 75 candlestick patterns that exist and backtested them on S&P 500 (SPY). The results were much better than we anticipated: Using detrended data (see more about detrending further down) we found out that 50 of the patterns returned better results than a buy and hold strategy over the holding period.
For your convenience, all the results are displayed in the chart below. If you want to see the name of the pattern you need to order our research. We have a special rebated offer that is valid until midnight 6th of July:
What is detrending?
Detrending is about removing any long-term trends in a dataset. For example, if you have a trading strategy that returns 5% annually while the base security also returns 5% annually, we can argue the trading strategy returns zero return (alpha). All things being equal, you can just as well just buy the security or asset and do nothing. However, the risk performance might be different – drawdowns, for example.
Here is another example of detrending: we must adjust for the long-term trend in stocks: statistics show that the stock market over time rises about 0.04% per trading day (we covered this trend in an article about night and overnight trading). If your trading strategy returns 0.1% per trading day over its three-day holding period, you clearly have a positive strategy.
You might like to read all our other articles about candlesticks
- Do candlesticks work? A quantitative test of 23 candlestick patterns
- 3 bullish candlestick patterns that work
- What is the best time frame for candlesticks?
- How many candlestick patterns are there?
- Candlestick pattern – doji
75 candlestick patterns quantified and ranked (the table is sortable):
The results are summarized in this sortable table:
| Pattern | #Trades | Avg P\L | Max DD | Win Ratio | Profit Factor | Annual Return | Exposure | Rank |
|---|---|---|---|---|---|---|---|---|
| 1 | 5 | 4.15 | -2.43 | 100 | N/A | 0.68 | 0.18 | 1 |
| 2 | 2 | 1.37 | 0 | 100 | N/A | 0.09 | 0.03 | 2 |
| 3 | 10 | 1.3 | -4.41 | 90 | 5.85 | 0.44 | 0.52 | 3 |
| 4 | 47 | 1.04 | -4.96 | 82.98 | 5.36 | 1.64 | 2.58 | 4 |
| 5 | 20 | 0.98 | -3.96 | 80 | 7 | 0.66 | 1.11 | 5 |
| 6 | 106 | 0.73 | -14.34 | 80.19 | 2.92 | 2.59 | 4.94 | 6 |
| 7 | 55 | 0.72 | -9.68 | 74.55 | 2.68 | 1.32 | 2.73 | 7 |
| 8 | 15 | 0.7 | -8.94 | 73.33 | 2.48 | 0.34 | 0.8 | 8 |
| 9 | 25 | 0.67 | -18.63 | 88 | 1.91 | 0.53 | 1.21 | 9 |
| 10 | 1 | 0.66 | -0.48 | 100 | N/A | 0.02 | 0.04 | 10 |
| 11 | 9 | 0.65 | -2.98 | 88.89 | 7.93 | 0.2 | 0.38 | 11 |
| 12 | 58 | 0.62 | -9.27 | 79.31 | 3.27 | 1.21 | 2.58 | 12 |
| 13 | 14 | 0.62 | -2.66 | 78.57 | 8.93 | 0.29 | 0.43 | 12 |
| 14 | 51 | 0.61 | -7.17 | 68.63 | 2.51 | 1.04 | 3.38 | 14 |
| 15 | 46 | 0.6 | -10.19 | 69.57 | 2.49 | 0.91 | 3.05 | 15 |
| 16 | 13 | 0.58 | -9.28 | 53.85 | 1.63 | 0.23 | 0.98 | 16 |
| 17 | 13 | 0.58 | -9.28 | 53.85 | 1.63 | 0.23 | 0.98 | 16 |
| 18 | 122 | 0.57 | -15.7 | 80.33 | 3.86 | 2.38 | 4.81 | 18 |
| 19 | 16 | 0.56 | -3.68 | 75 | 4.43 | 0.3 | 0.62 | 19 |
| 20 | 276 | 0.55 | -16.6 | 71.74 | 2.63 | 5.16 | 13.79 | 20 |
| 21 | 192 | 0.5 | -18.2 | 69.27 | 2.14 | 3.19 | 9.9 | 21 |
| 22 | 115 | 0.44 | -15.34 | 76.52 | 2.31 | 1.69 | 4.76 | 22 |
| 23 | 45 | 0.43 | -12.59 | 62.22 | 1.93 | 0.64 | 1.99 | 23 |
| 24 | 67 | 0.43 | -13 | 79.1 | 2.33 | 0.96 | 2.77 | 23 |
| 25 | 114 | 0.42 | -23.75 | 73.68 | 1.63 | 1.55 | 6.17 | 25 |
| 26 | 50 | 0.42 | -3.88 | 72 | 3.19 | 0.7 | 2.92 | 25 |
| 27 | 25 | 0.41 | -9.93 | 60 | 1.71 | 0.33 | 1.17 | 27 |
| 28 | 69 | 0.41 | -18.01 | 69.57 | 1.54 | 0.88 | 3.95 | 27 |
| 29 | 80 | 0.37 | -25.11 | 68.75 | 1.55 | 0.94 | 4.56 | 29 |
| 30 | 52 | 0.37 | -8.51 | 75 | 2.11 | 0.64 | 2.29 | 29 |
| 31 | 53 | 0.37 | -17.78 | 79.25 | 1.71 | 0.63 | 2.56 | 29 |
| 32 | 54 | 0.37 | -8.96 | 72.22 | 1.98 | 0.67 | 2.13 | 29 |
| 33 | 120 | 0.36 | -22.62 | 70.83 | 1.59 | 1.37 | 6.43 | 33 |
| 34 | 285 | 0.36 | -25.61 | 76.49 | 1.75 | 3.34 | 11.31 | 33 |
| 35 | 112 | 0.34 | -14.34 | 73.21 | 1.92 | 1.26 | 7.08 | 35 |
| 36 | 62 | 0.34 | -12.37 | 74.19 | 1.89 | 0.7 | 2.79 | 35 |
| 37 | 10 | 0.34 | -4.11 | 80 | 2.03 | 0.11 | 0.35 | 35 |
| 38 | 208 | 0.32 | -18.69 | 67.79 | 1.68 | 2.2 | 11.57 | 38 |
| 39 | 45 | 0.3 | -16.79 | 68.89 | 1.39 | 0.41 | 2.59 | 39 |
| 40 | 19 | 0.29 | -7.96 | 63.16 | 1.76 | 0.18 | 0.84 | 40 |
| 41 | 32 | 0.27 | -5.16 | 71.88 | 2.11 | 0.29 | 1.19 | 41 |
| 42 | 9 | 0.26 | -4.11 | 77.78 | 1.72 | 0.08 | 0.33 | 42 |
| 43 | 5 | 0.25 | -1.15 | 60 | 2.99 | 0.04 | 0.18 | 43 |
| 44 | 40 | 0.25 | -9.26 | 72.5 | 1.68 | 0.33 | 1.94 | 43 |
| 45 | 500 | 0.24 | -24.79 | 70 | 1.48 | 3.77 | 24.33 | 45 |
| 46 | 234 | 0.23 | -24.53 | 77.35 | 1.4 | 1.68 | 11.36 | 46 |
| 47 | 234 | 0.23 | -24.53 | 77.35 | 1.4 | 1.68 | 11.36 | 46 |
| 48 | 57 | 0.23 | -8.49 | 64.91 | 1.63 | 0.43 | 2.93 | 46 |
| 49 | 39 | 0.22 | -6.23 | 76.92 | 1.61 | 0.28 | 1.86 | 49 |
| 50 | 13 | 0.16 | -5.84 | 53.85 | 1.39 | 0.07 | 0.66 | 50 |
| 51 | 40 | 0.15 | -10.78 | 77.5 | 1.34 | 0.19 | 2.07 | 51 |
| 52 | 159 | 0.15 | -25.86 | 63.52 | 1.24 | 0.72 | 10.66 | 51 |
| 53 | 15 | 0.15 | -13.08 | 73.33 | 1.14 | 0.06 | 0.6 | 51 |
| 54 | 1 | 0.13 | 0 | 100 | N/A | 0 | 0.01 | 54 |
| 55 | 42 | 0.09 | -22.94 | 61.9 | 1.05 | 0.06 | 2.4 | 55 |
| 56 | 42 | 0.08 | -6.43 | 69.05 | 1.26 | 0.12 | 1.79 | 56 |
| 57 | 58 | 0.07 | -6.89 | 58.62 | 1.14 | 0.12 | 2.98 | 57 |
| 58 | 250 | 0.05 | -34.61 | 66.4 | 1.02 | 0.14 | 12.8 | 58 |
| 59 | 9 | 0.03 | -5.21 | 55.56 | 1.04 | 0.01 | 0.58 | 59 |
| 60 | 74 | 0.03 | -14.53 | 72.97 | 1.03 | 0.04 | 4.01 | 59 |
| 61 | 11 | 0.03 | -3.77 | 63.64 | 1.12 | 0.01 | 0.6 | 59 |
| 62 | 2 | 0.02 | -3.34 | 50 | 1.01 | 0 | 0.14 | 62 |
| 63 | 34 | 0.02 | -14.71 | 67.65 | 0.97 | -0.03 | 1.67 | 62 |
| 64 | 12 | 0.01 | -12.33 | 75 | 0.98 | -0.01 | 0.79 | 64 |
| 65 | 35 | -0.01 | -5.91 | 51.43 | 0.97 | -0.02 | 1.82 | 65 |
| 66 | 97 | -0.02 | -27.87 | 63.92 | 0.93 | -0.16 | 6.96 | 66 |
| 67 | 88 | -0.03 | -11.64 | 60.23 | 0.93 | -0.11 | 4.54 | 67 |
| 68 | 33 | -0.17 | -13.35 | 69.7 | 0.75 | -0.21 | 1.57 | 68 |
| 69 | 31 | -0.2 | -24.24 | 67.74 | 0.76 | -0.28 | 2.16 | 69 |
| 70 | 70 | -0.32 | -34.05 | 61.43 | 0.68 | -0.9 | 5.27 | 70 |
| 71 | 2 | -0.39 | -1.89 | 0 | 0 | -0.03 | 0.15 | 71 |
| 72 | 19 | -0.47 | -16.83 | 47.37 | 0.59 | -0.33 | 1.52 | 72 |
| 73 | 16 | -0.78 | -17.01 | 50 | 0.35 | -0.44 | 1.04 | 73 |
| 74 | 13 | -0.94 | -15.69 | 53.85 | 0.35 | -0.43 | 0.99 | 74 |
| 75 | 7 | -1.57 | -19.75 | 57.14 | 0.34 | -0.42 | 0.64 | 75 |
