Trading signal: create your own candlestick patterns

Description

This signal allows traders to define and visualize their own candlestick patterns.

   
Category : Patterns
Components : Candlesticks
Time frame(s) : All
Usable for buy signals : Yes
Usable for short sell signals : Yes

A candlestick pattern is defined in two steps. In the first step the trader details the trading hours and the type of signal he is interested in. In the second step the trader defines the group(s) of candles. As usual all parameters can be set in the Designer Dialog window.

Step 1

Define the trading hours. The trading hours are defined by a start time and an end time. If you only wish to detect your candlestick pattern in the morning you can, for example, enter 0900 and 1200. If the trading hours are not relevant to you, leave the settings on 0 and 2359.

Setting trading times


Define the signal type. A signal can either be a buy signal or a short sell signal. A buy signal is 1. A short sell signal is 2.

Buy or sell signal


Step 2

Define the number of groups. Up to four groups of candles are possible. Group 1 is the oldest group. Group 4 is the most recent group. The groups are distinguished by grey backgrounds in the chart.

Steve Nison candles  

This example shows four groups containing one candle each.



It is not obligatory to define 4 groups. You can also limit yourself to three, two or even a single group. If, for example, you only want 3 groups of candles, set the group 1 code to 0.


Define the candle(s) in each group. The candles in a group are defined using four parameters.

Number of candles in the group. A group can contain up to nine candles.
1: 1 candle in the group
2: 2 candles in the group

9: 9 candles in the group

Direction of the group. The direction of a group is based on the open price of the first candle in the group and the close price of the last candle in the group.
1: upwards direction (i.e. close price above open price)
2: downwards (i.e. close price below open price)
0: upwards and downwards

Direction of the candles.
1: only positive (green) candles
2: only negative (red) candles
0: positive and negative candles

Size of the groups. This parameter can vary from 0 to 9. Always set the group with the biggest candle(s) to 9. This is the reference point for the other groups. The size (height) of the group is the range between its highest and lowest price. If you now set a second group to, say, 8, you require that this second group needs to be 8/9 of the reference group (note: the system will accept 8/9 of the size with a variance of +/- 40%). If the relative size of the groups is not important to you, set this parameter to 0.
1-9: relative size of the groups with 9 being the biggest group
0: the size of the candle(s) in the group is not relevant

These four parameters combine into a simple four-digit code for each group. The following examples provide more detail.

Example 1. You want to find all candlestick patterns which consist of four successive green candles of about equal size. Define four groups of one candle each. The direction of each group is upwards. Each group contains only one positive candle. This already partially defines the four codes as 111x. The candles also need to be about the same size. Hence the codes become 1119.

Free trading signals based on candle patterns


Example 2. You want to find a Doji (candle with no body) followed by three positive candles. Define two groups. One for the Doji. One for the three positive (green) candles. Notice that a Doji per definition will always have the code 100x. The codes for the two groups are 1000 and 3110.

Doji candle trade signal


Example 3. You want to find four negative (red) candles followed by two positive (green) candles. Define two groups. One for the negative candles. One for the positive candles. If the relative height of the groups is not relevant to you, the codes are 4229 and 2110.

Trade signals based on candle patterns


Example 4. Similar to Example 3 you want to find four negative (red) candles followed by two positive (green) candles. However, in this example, you want the positive group to be less than half (4/9) the height of the negative group. This requirement changes the codes to 4229 and 2114.

Program candle patterns for trading signals

When to open a position?

A buy signal appears when the candlestick pattern you defined is confirmed. A short sell signal appears when the candlestick pattern you defined is confirmed.

Remember: by using the TacticOrder tool you automate these signals in a simple way without any programming.