Testing Next-Bar Returns After Runs of Same-Color Candles

Summary

This tool graphs cumulative simulated outcomes after consecutive runs of bullish or bearish candles, considering run lengths from one to twelve. For each qualifying pattern, it records a one-candle return in the direction of a hypothetical long position and can subtract a user-specified spread. Users can choose which run lengths and candle directions to display, and can switch between counting every overlapping run and counting only runs preceded by a candle of the opposite color.

The graph is intended to compare historical outcomes across markets and timeframes and to help inspect whether returns vary with run length. The author cautions that short timeframes may be dominated by noise and recommends comparing the graph with a companion analysis that reports win rates and average returns. The document presents no empirical results or validation. Its simulated totals do not by themselves establish predictive power, account for all trading costs, or show whether the patterns persist out of sample.

Key ideas

• The analysis groups historical candles by same-color run length, up to twelve bars.
• It records a simulated one-bar long return after each qualifying run and can deduct spread.
• The CountAll setting determines whether overlapping runs are included.
• The author cautions that results on short timeframes may be noisy and recommends reviewing complementary statistics.

Tags

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