Candle patterns are predictable psychological trading pictures (windows) that produce reasonable forecasting results when used in the proper manner. This article will explain the technique used to determine the various statistics developed to show the success of candle patterns. Note that no magnitude of success is used, only a relative success and failure. Keep in mind, though, that success still means that the pattern correctly predicted the market move and failure means that it did not.
Using all of the information about pattern recognition (including trend determination) developed in the previous articles, we will now set out to see just how good candle patterns are. Because a simple approach is usually best, no elaborate assumptions were used, only the price change over various time intervals into the future. Those time intervals were measured in days.