Candlesticks, Fibonacci, and Chart Pattern Trading Tools : a synergistic Strategy to Enhance Profits and Reduce Risk

84
•
APPLICATIONS OF TRADING STRATEGIES
The usefulness of candlesticks as stand-alone trading tools has
to be judged carefully. Our own simulation on the DJ EuroStoxx 50
Index came up with a solid prof it potential and a decent prof it/ loss
ratio over a 3-month test period in mid-2002.
However, negative test results were retrieved from Rogalski
Trading, Germany, using the most common candlestick patterns on
the Dax 30 Futures Index and the Euro-Bund Future over a longer
time period. The test runs conducted by Rogalski Trading were based
on the following parameters:
• Dax 30 Futures Index tested from March 1997 to February 2001.
• Euro-Bund Future tested from January 1994 to February 2001.
• Entry rule on stop at the candlestick pattern high price or low
price, or market on open of the following trading day, whichever
comes f irst.
• Exit rule market on the daily close after day 1 or on the daily
close after day 3.
• Slippage and commission calculated as 2 basis points in both,
the Dax 30 Futures Index and the Euro-Bund Future.
The test results by Rogalski Trading for selected candlestick chart
patterns and based on the 1-day close and 3-day close exit rule lead to
a prof ile that leaves some room for interpretation and speculation.
Rogalski Trading have investigated seven candlestick patterns.
The f indings for four of the patterns are summarized in Table 4.9.
Table 4.9
Simulation of Trading Signals Based on Candlestick
Chart Patterns Daily (BE: Bullish Engulfing, MS: 
Morning Star, HM: Hanging Man, HA : Hammer)
BE
BE
MS
MS
HM
HM
HA
HA
(1)
(3)
(1)
(3)
(1)
(3)
(1)
(3)
Dax 30
36
256
(509)
(285)
(373)
210
42
342
Bund
(1.74)
0.34
(1.74)
4.25
4.67
6.72
(1.33)
3.14
Source: Rogalski Trading,
by Andre Rogalski, Berlin, Germany, 2000.
c04.qxd 6/16/03 4:17 PM Page 84

---