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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski’s Black Candle

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Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 07/24/2017
21,513 -66.90 -0.3%
9,428 -43.07 -0.5%
719 -6.46 -0.9%
6,411 23.06 0.4%
2,470 -2.63 -0.1%
YTD
8.9%
4.2%
9.0%
19.1%
10.3%
Tom's Targets    Overview: 07/14/2017
21,850 or 21,000 by 08/01/2017
9,950 or 9,400 by 08/01/2017
740 or 685 by 08/01/2017
6,450 or 6,175 by 08/01/2017
2,525 or 2,400 by 08/01/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

My book, Encyclopedia of Candlestick ChartsEncyclopedia of Candlestick Charts book., pictured on the left, takes an in-depth look at candlesticks, including performance statistics.

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The black candlestick shows near random direction under actual market conditions since it acts as a continuation 52% of the time. In theory, it can act as either a continuation candlestick or a reversal. The only thing remarkable about this candlestick is its frequency: 3rd out of 103 where 1 is the most common. Performance over 10 days is about what you would expect: close to last place (ranking 82).

Important Results for Black Candles

Theoretical performance: Reversal or continuation
Tested performance: Continuation 52% of the time
Frequency rank: 3
Overall performance rank: 82
Best percentage meeting price target: 84% (bear market, down breakout)
Best average move in 10 days: -6% (bear market, down breakout)
Best 10-day performance rank: 19 (bear market, down breakout)

All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

The ideal black candlestick
Black Candlestick
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Black Candle Discussion

In theory, a black candlestick can act as either a reversal or continuation of the existing price trend. In testing, I found that it acts as a continuation 52% of the time, which is almost like saying the breakout direction is random. On a scale of 1 to 103, the black candle placed third for frequency, where 1 is best. That means the candle is as plentiful as beach sand in your shoes after a picnic on the lakeshore. The rank for overall price performance over 10 days is a dismal 82, well behind the herd.

In a bear market after a downward breakout is where the black candlestick gets its strength. It meets the predicted price target 84% of the time, drops 6% in 10 days, on average, and ranks 19th for that performance under those conditions.

Black Candle Identification Guidelines

CharacteristicDiscussion
Number of candle linesOne.
Price trend leading to the patternNone required.
ConfigurationLook for a black colored candle of average size with shadows that are smaller than the body height.

Three Trading Tidbits for Black Candles

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book where the tips appear.

  1. Black candles that appear within a third of the yearly low perform best -- page 149.
  2. Black candles taller than the median show price that moves almost twice as far after the breakout as those shorter than the median -- page 149-150.
  3. If the day price closes above or below the top/bottom of the candle is on high volume, expect a larger price move than on those days that have light breakout volume -- page 150.

The black candlestick on the daily scale

Black Candle Example

The figure shows three black candlesticks on the daily scale. Each one has shadows smaller than the body height (although candle A might not look like it). Since this candle has no real defined breakout direction, I consider it meaningless. It is just another price bar on the chart.

Candle A begins the downtrend after a black candle with a tall upper shadow. Candle B looks as if it reverses the downtrend -- at least for a while. Candle C ends the swift down draft and price moves horizontally for a few days before rebounding. Can you tell anything from these three black candles?

-- Thomas Bulkowski

 

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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. The more you complain, the longer God makes you live.