Trading signal: create your own candlestick patterns

Description

Like the first version of the signal, this second version allows traders to define their own candlestick patterns composed of 1 to 4 groups of candles. Each group of candles has set characteristics such as number of candles, group direction, colours for the candles and relative size of the group.

The novelty of version 2 is that it allows the trader to vary the number of candlesticks defining a group. For example, if in the first version a group of candles is defined by 2 candlesticks, the code defining the group is 2xxx. In the second version, it is possible to extend the choice to include, for instance, the groups of candles consisted of 1 to 2 candles. The code defining this group is 12xxx.

Concretely, the second version gives the possibility to include more signals with similar features by means of a given code.

   
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.


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.


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


Define the sensitivity of the sizes of candle groups. The higher the sensitivity, the more signals will be detected.

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.

 

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.
11: 1 candle in the group
22: 2 candles in the group

99: 9 candles in the group

A group can also contain a variable number of candles as shown below:

12: 1 to 2 candles in the group
25: 2 to 5 candles in the group

79: 7 to 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 +/- 30%). 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. 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 code as 1111x. The candles also need to be about the same size. Hence the codes become 11119.

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 1100x. The codes for the two groups are 11000 and 33110.

Example 3. You want to find two to four negative (red) candles followed by one or 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 24220 and 12110.

Example 4. Similar to Example 3 you want to find two to four negative (red) candles followed by one or two positive (green) candles. However, in this example, you want the positive group to be twice the size of the negative group. This requirement changes the codes to 24224 and 12118.

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.