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February 2015 Stocks and Commodities Traders Tips

Candlesticks, Condensed

AIQ Version:

Original article by David Cline
AIQ Code by Richard Denning

In doing the coding in AIQ for the candle signatures, I used the weekly mode as AIQ has a daily mode and a weekly mode but no monthly mode in the EDS module. I created a series of reports that show the candle signatures for the date entered into the report date box. The first report, called “ListAll”, lists all stocks with closes greater than $5.00 in the database and the report shows the signature for the current week and also for the prior weekly bar. I also created reports for all of the signatures that are listed in the author’s Figure 6. These additional report all have the same format as the “ListAll” report. The “S411” report shows all stocks with prices greater than $5.00 that also have a current weekly signature of 4:1:1. These reports also list whatever the signature was for the prior week. Candle patterns can be constructed using multiple bars of signatures. For illustrative purposes only I provide the following format for a three bar pattern:

S3_411 if S411 and valrule(S411,1) and valrule(S411,2).

This report lists only those stocks that had a 4:1:1 signature for the current bar and the prior two bars.

In Figure 1, I show a chart of eHealth (EHTH) as of 1/10/2014. On this date it appeared on the S3_411 report. Buying on the next weekly open and selling at the following weekly open resulted in a 9.35% return.

Note that I did not code exits for the patterns as the built in exits can be used to experiment with the candle signatures.

Figure 1 –Weekly chart of eHealth (EHTH) as of 1/10/2014 showing white up arrow on the signal date for the S3_411 three bar report pattern.

EDS Code:
(right click and choose Save As)


Traders Studio Version :

Original article by David Cline
Traders Studio Code by Richard Denning

The following code files are contained in the download below:

  • Function: CANDLE_SIG: returns 1 if the candle signature could be computed and also by reference it set the values for HO, HC & OL (the candle signature); returns 0 if the signature could not be computed and sets each of HO,HC & OL to a “-1”.
  • System: CANDLE_COND: a long only system that uses weekly data and a single bar candle signature to enter at the next weekly open and exits as soon as the entered candle signature is other than the one input.

The system provided allows one to explore the candle signatures using daily, weekly or monthly data. I used weekly data on the full sized S&P 500 futures contract (data from Pinnacle Data Corp) and optimized for the various signatures. One of the better ones was the 3:4:2 weekly candle signature (see Figure 1). I then added other index futures (DJ, DX, MD, ND and RL) and ran the back-test with the 3:4:2 parameters which resulted in the curves shown in Figure 2. The results shown in Figure 1 and Figure 2 do not include slippage and commissions. Over the 15 year test period there were only 50 trades for this index portfolio. Much more work is needed but the candle signature provides a useful tool for researching candle patterns.

Figure 1 - Equity & underwater equity curves for the CANDLE_CONDENSED system trading one contract per signal on the S&P 500 (SP) futures contract with parameters 3:4:2 from 1999 to 2014.

Figure 2 - Equity & underwater equity curves for the CANDLE_CONDENSED system trading one contract per signal on the index futures portfolio of six contracts with parameters 3:4:2 from 1999 to 2014.

Traders Studio Code:
(right click and choose Save As)














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