Back-testing of some candlestick patterns 🧵

I hv back-tested patterns shown below on 500 stocks (Nifty 500 stock group as on today) since inception on daily timeframe charts.

Below is some interesting information.

I was doing to design multi-chart setups. But the information in the thread can be useful for people practicing candlestick chart patterns. There are many patterns & we keep coming across more. The data can give you a rough idea about the past performance of patterns.

Patterns are defined based on the popular rules of identifying them. I have also tested bearish patterns for bullish trades and vice versa (Contra approach).

Criteria: Hit ratio & returns of pattern giving 1:1 risk-reward if the entry is at the closing price of the pattern.

Some top bullish patterns have below hit ratio:

Inverted Hammer or Shooting Star – 74.72%
Multi-Harami breakout - 65.23%
Bullish Harami cross – 64.6%
Bullish Kicker – 63.53% (Got better returns)
Bullish separating line – 61.69% (It has got better returns)

Doji breakout hit ratio is decent (63.71%) but occurrences are v high so need more confirmation.

Engulfing and Harami patterns have got better returns when traded at next candle of confirmation.

Thread: 5 Important bullish & bearish chart patterns in technical analysis.

Triangles, Broadenings and Rectangles.

#trading #investing

Many traders analyse and practice western chart patterns. There are many such patterns and enough is talked about them in various books and resources.
Long back, I read a book “Encyclopedia of Chart Patterns” by Thomas N. Bukowski. It’s a brilliant work (Must read).

He backtested many patterns & ranked them based on their performance. Most imp is that he separated the patterns based on their performance in uptrend & downtrend.
I read about those patterns at many other places & in different theories and I realised that most of them are-

-variations of broad category of patterns. I have bifurcated these patterns in various categories.

Triangles, Broadenings & Brackets or Rectangle patterns are most common & effective patterns. Below are 5 bullish & bearish proven, time-tested patterns of these categories.

Bullish Patterns:
Rectangle Breakout:
Horizontal pattern breakout. Price remains between two horizontal lines before upward brkout. Its a decent continuation breakout pattern when appears in uptrend. Reversal pattern when appear in downtrend (Decent Risk-reward). Tend to pullback