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How does HotCandlestick.com score candlestick patterns?

Since early 2001 HotCandlestick.com has offered members a view through the window of candlestick chart analysis. Over 1,000,000 individual occurrences of candle patterns are identified on the daily charts of the 10,000+ securities tracked by HotCandlestick.com. Members can quickly find patterns that have historically worked well for individual securities.

HotCandlestick.com created the score of a candlestick pattern. The HotCandlestick scoring system is a statistical approach to quantify the reward to risk ratio for individual securities. Stocks are prone to a variety of market forces, technical and fundamental. HotCandlestick.com developed a scoring system which accounts for variation in stock prices within and between stocks.

The HotCandlestick SCORE measures the past success of a given candlestick pattern for a particular security. Criteria are set such that a stock must have at least 5 instances of a particular candlestick pattern before appearing in this database. The SCORE formula uses the standard deviation of the actual % gains for each of the 5 days following the candle signal. Scoring allows for easy identification of patterns that have worked well for individual stocks by ranking the % gains achieved based on how consistently those gains were achieved.

The formula used to calculate the SCORE of a candlestick pattern for a given security is:

Variables:

n = 1st, 2nd, 3rd, 4th, 5th
x = n Day Median Gain for the given security and candle pattern
y = Standard Deviation of all n Day Median Gains
z1 = Count of the candle pattern found over the entire date range of the database
z2 = Count of the candle pattern found for the given security over the entire date range of the database


Individual Candle Patterns found in white section at top of the "Search Databases" page:
n Day Score for Individual Candle Patterns = [(x * sqrt(z1)) / (y * y)] * 1000

Individual Securities found at bottom (pink text) on the "Search Databases" page:
n Day Score for Individual Securities = [(x * sqrt(z2)) / (y * y)] * 1000


To find which LONG (BUY then SELL) positions worked well in the past you should look for high positive SCORE values. High positive SCORE values represents a high reward to risk ratio for LONG positions. Conversely, to find which SHORT (SELL then BUY) positions worked well in the past you should look for large negative SCORE values. Large negative SCORE values represents a high reward to risk ratio for SHORT positions.

For example,

A higher positive SCORE value appears for a stock with the following 1st day percent gains (+5%, +4%, +7%) than another stock with the following 1st day % gains (-12%, +10%, +5%).


Next Page:  View the candlestick patterns tracked at HotCandlestick.com


Any specific investment or investment service contained or referred to in this web site may not be suitable for all visitors to this site. An investment in stocks may mean investors may lose an amount even greater than their original investment. Anyone wishing to invest or speculate in the stock market should seek their own financial or professional advice. HotCandlestick.com, LLC is not an investment advisory service and does not recommend the purchase or sale of stocks. There are no licensed financial advisors working at HotCandlestick.com, LLC. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING SYSTEM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. THE RISK OF LOSS IN TRADING STOCKS CAN BE SUBSTANTIAL. Stock trading is speculative and a substantial risk of loss exists. Past performance is not necessarily indicative of future results.



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