Candlestick Patterns: does it work?

Candlestick patterns such as the engulfing candle, the doji and three white soldiers are taught as signs that a move is about to reverse or continue. Four of the most repeated ones were coded from how tutorials describe them and tested.

The rule we tested. Daily crypto bars, four rules coded from how social-media and forum tutorials describe them: a bullish or bearish engulfing candle reversal near a 20-day swing extreme, a doji at a 20-day extreme with a 1.5x volume spike, the three white soldiers or three black crows pattern, and a Heikin-Ashi colour-flip trend system.

These versions did not pass these tests. crypto pairs −57.9 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −133.2 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −58.9 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −47.4 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000). None cleared Tickfloor's Benjamini-Hochberg q<0.10 bar once weighed against every other rule tested alongside it. This describes the tested implementations, the costs and the benchmark stated here, not every version of the rule. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.

This is one line in a wider check: Tickfloor's research desk has run 517 strategies, most of them against an equal-weight benchmark of the same assets rebalanced daily that pays no costs (the strategies pay theirs), and after correcting for how many were tested (Benjamini-Hochberg, 598 tests), 0 passed. That does not prove no strategy works, and it says nothing about untested versions of a rule. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.

General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.

Do candlestick patterns work?

These versions did not pass these tests. crypto pairs −57.9 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −133.2 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −58.9 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −47.4 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000). None cleared Tickfloor's Benjamini-Hochberg q<0.10 bar once weighed against every other rule tested alongside it. This describes the tested implementations, the costs and the benchmark stated here, not every version of the rule. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.

What exact rule did Tickfloor test?

Daily crypto bars, four rules coded from how social-media and forum tutorials describe them: a bullish or bearish engulfing candle reversal near a 20-day swing extreme, a doji at a 20-day extreme with a 1.5x volume spike, the three white soldiers or three black crows pattern, and a Heikin-Ashi colour-flip trend system.

What about hammer and shooting-star candles?

Those are tested at support and resistance on their own page, linked below.

Is this financial advice?

No. This measures a publicly claimed strategy rule, not a recommendation. General information only, not personal advice.

See the full numbers on the Mean reversion, Momentum, Social media chart patterns family pages, or the full method and every result.

Other rules we've tested

Terms explained

All the rules we tested