Screening for Reversal Candles, High ROE, and Relative Valuation

Summary

This Chinese equity screen combines a daily amplitude threshold, a reversal or engulfing-style candle pattern, sustained return on equity, and a valuation check against the industry average. The refined rules specify a pattern within the most recent three trading days, ROE above 15% in each of the latest five fiscal years, and price-to-earnings no higher than the industry average. Formula and Python examples are included, though the examples do not clearly implement the full multi-year ROE requirement or precisely match the stated reversal pattern.

The article frames amplitude and the candle signal as technical filters and ROE and relative P/E as fundamental filters. It warns that ROE depends on accounting methods and that high ROE alone does not establish attractive valuation. It suggests reviewing ROE trends and causes, adding measures such as price-to-book or dividends, and considering financial risk and industry conditions. No backtest, performance evidence, or benchmark is provided, so the selection logic remains a proposed screen rather than a demonstrated strategy.

Key ideas

• The proposed screen combines price amplitude, a recent reversal pattern, consistently high ROE, and P/E below or equal to the industry average.
• The refined criteria require the candle pattern within three sessions and ROE above 15% across five fiscal years.
• ROE can be affected by accounting choices and does not by itself show that a stock is fairly valued.
• The code examples appear less complete than the stated multi-year ROE rule and may use a different candle-pattern definition.
• The article recommends adding valuation, financial-risk, and industry context, but reports no performance test.

Tags

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