Estimating Next-Candle Direction from Historical Candlestick Patterns

Summary

This indicator estimates historical directional frequencies for candle patterns. It groups prior bars by body color and by whether their highs or lows are above or below the preceding bar, including combinations of those features. For each matching pattern, it compares long and short outcomes using a hypothetical entry at the next bar’s open and exit at that bar’s close. It also displays an unconditional market baseline, average rates across the current candle’s matching patterns, and differences between those averages and the baseline.

The output is a descriptive historical comparison, not a validated forecast. The document itself cautions that past outcomes may not persist and that an index’s general upward drift can make long outcomes more common than short outcomes. It suggests using the display on daily or weekly charts as context. No sample counts, uncertainty estimates, out-of-sample results, transaction costs, or adjustments for overlapping observations are reported, so apparent pattern advantages may be noisy or regime-dependent.

Key ideas

• The indicator classifies candles by body direction and relative highs and lows, then evaluates combinations of those traits.
• It estimates hypothetical next-bar long and short win rates using entry at the open and exit at the close.
• It compares pattern-specific averages with an unconditional market win-rate baseline.
• Historical frequencies may not predict future outcomes, and an upward index drift can favor long statistics.
• The document reports no sample sizes, confidence measures, costs, or out-of-sample validation.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.