Today, we are sending you a test we ran showing the 10 best candlestick patterns, ranked from all 75 patterns.

If you prefer video, we also have a newly published YouTube video covering the same topic.

Candlestick patterns are everywhere in trading. You see them on charts, in books, on YouTube, and all over social media.

But here’s the uncomfortable truth: most candlestick patterns don’t work the way traders think they do. Even worse, most candlesticks don't work at all.

Many patterns are based on anecdotes, chart examples, and tradition rather than actual data.

Instead of relying on opinions or visual pattern recognition, we did what traders should always do: we backtested them.

We coded and backtested 75 different candlestick patterns using strict quantitative trading rules.

In this article, we reveal the 10 best candlestick patterns ranked by real historical performance for the stock market.

These patterns are not ranked by popularity. They are ranked by data.

You’ll also see how combining several of the best patterns can produce a surprisingly robust trading strategy.

All candlestick patterns were tested on the S&P 500.

This means the results reflect the behavior of the broad U.S. stock market.

Each pattern was coded into a fully mechanical trading rule and tested one by one.

To keep the results realistic, we included trading costs of 0.03 percent per trade for slippage and commissions.

When a candlestick pattern triggered a signal, we measured the performance over the next 1 to 20 trading days.

Each pattern, therefore, produced 20 different performance results.

To rank the patterns, we used the average of two key metrics:

• Profit factor
• Annualized returns

The candlestick patterns with the highest combined averages ranked the highest.

Profit factor is one of the most important metrics for evaluating trading systems.

It measures the relationship between total profits and total losses.

Profit Factor = Gross Profit / Gross Loss

A profit factor above 1 means the strategy is profitable.

The higher the number, the better the system performs.

As a rule of thumb, we consider a profit factor above 1.75 to be acceptable for a trading strategy.

Below are the ten best candlestick patterns based on our backtests of 75 different formations. If you are interested in the code, you find it on our website:

We start with number ten and work our way to the best performer.

The bearish separating line is a two-candle pattern.

It begins with a relatively strong bullish candle, followed by a strong bearish candle that opens at the same price level as the previous candle.

Despite its name, the pattern actually produces a short-term bullish signal in the S&P 500.

For example, holding the market for ten trading days after the signal produces an average gain of 0.36 percent across 63 trades.

The pattern does not occur very often, which limits the overall annual return.

Among the top ten patterns, it has the lowest profit factor.

The marubozu is a single-candle candlestick pattern.

It is easy to recognize: a long candle with very small or nonexistent shadows.

A perfect marubozu has no upper or lower wicks, although this is relatively rare.

Interestingly, the first few days after the signal tend to show slightly negative returns.

The performance improves as the holding period increases, but much of that effect reflects the general upward bias of the stock market.

The long-legged doji is another single-candle pattern.

It signals market indecision and potential reversals.

The candle features long upper and lower shadows with a very small body near the center of the price range.

This pattern appears infrequently and produces only modest average returns.

The neutral doji forms when the opening and closing prices are almost identical.

It can appear after both uptrends and downtrends and often signals a potential reversal.

In our tests, the neutral doji performs roughly in line with the overall upward bias of the stock market.

However, the pattern occurs frequently, which provides many trading opportunities.

The bullish harami is a two-candle reversal pattern.

The first candle is bearish and relatively large.

The second candle is small and bullish, with its entire body contained within the previous candle’s body.

Among the ten best candlestick patterns, the bullish harami appears the most often.

It performs slightly better than random chance during the first few trading days, but the effect fades over longer holding periods.

The three inside up pattern consists of three candles.

The first two candles form an inside bar formation, followed by a bullish breakout.

When holding the S&P 500 for more than ten days after the signal, the pattern produces better-than-average returns.

Over a 20-day holding period, the average gain is roughly twice the typical market return for that time span.

However, the pattern does not trigger very frequently.

The bullish piercing line is a two-candle continuation pattern.

It typically appears during an existing uptrend after a temporary pullback.

Despite its reputation, the short-term performance is weak.

Over longer holding periods, the results are roughly in line with the general upward drift of the stock market.

The dark cloud cover is a two-candle pattern.

The first candle is strongly bullish.

The second candle gaps higher at the open but then reverses and closes below the midpoint of the first candle.

In our tests, this pattern performs well across both short and longer time frames.

It also occurs regularly, providing several trades per year.

The three outside down pattern forms over three consecutive candles.

It typically appears after an extended rally.

The pattern produces strong short-term mean reversion.

For example, after three trading days the average gain per trade is approximately 0.58 percent.

The best-performing candlestick pattern in our study is the bearish engulfing pattern.

Despite its bearish name, it works extremely well as a bullish mean-reversion signal.

The stock market tends to revert to the mean in the short term, which explains why many “bearish” patterns work well from the long side.

The bearish engulfing consists of two candles:

A bullish candle followed by a bearish candle that fully engulfs the body of the previous candle.

This pattern occurs relatively frequently and delivers strong results.

If you hold the market for five trading days after the signal, the average gain is 0.46 percent.

That is more than double the average return of a random five-day period.

We have now shown you the ten best candlestick patterns, all quantified and ranked.

They vary in both performance and the number of fills.

Individual candlestick patterns can provide useful signals.

But the real power comes from combining several patterns into one strategy.

When we combine the five best patterns and slightly modify the exit rule, the results become surprisingly strong.

Instead of exiting after a fixed number of days, the strategy exits when the close finishes above the previous day’s high.

Starting with $100,000 in 1993, the strategy grew to roughly $1.4 million.

Key statistics:

Average gain per trade: 0.5 percent
Win rate: 74 percent
Maximum drawdown: 13 percent
Annual return: 8.3 percent

Importantly, the strategy is invested only about 20 percent of the time.

Yes. Candlestick strategies can often be improved by adding filters.

Common filters include:

These additions can help improve both returns and risk-adjusted performance.

It is also worth noting that candlestick patterns tend to work best in stocks.

Their effectiveness is generally weaker in other asset classes, such as forex or commodities.

Most candlestick patterns are widely known but rarely backtested.

By coding and backtesting 75 different candlestick patterns, we were able to identify the few that actually show statistical edges.

The ten patterns in this ranking represent the best performers based on historical data.

If you want to explore the full research, including all 75 patterns, trading rules, and complete strategy code, you can find it on our website.

Everything is fully transparent and rule-based, so you can test the results of the 10 best candlestick patterns yourself or implement them in your own trading system.

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Oddmund & Håkan