An examination of Three Candle Patterns and how they fare at around the time of the Market Open.
Three Candle Patterns like the Three Black Crows are used by traders to make particular trades, but some other patterns that are not as well known or publicized can be found on Hourly Charts and are supposedly successful at a particular time of day. There are five major market openings during the trading day: Frankfurt, London, New York, Tokyo, and Sydney. There are eight different Three Candle Patterns that supposedly experience success during Market Opens and it is entirely possible that different currency pairs may yield better returns utilizing these patterns.
This is a visual of the Three Candle Patterns discussed and they will all be used as a group in trades. The objective is to make a quick gain, a near scalp, and get out of the trade with a profit while still allowing for a quite a bit of leeway considering the volatility of a market open.
The patterns will not look exactly like the above image, but they will have the same general themes regarding the Open, High, Low, and Close relative to each other and for the specific candles. The candles will be rather diverse, but the images of the patterns are the general themes that are strived for in the execution of the backtest.
The Testing Conditions for the Three Candle Pattern
Currency Pairs Used: EURUSD, GBPUSD, EURGBP
Chart Timeframe: 1 Hour Chart
Timezone: GMT+2/GMT+3 (No matter when, it is 7 hours ahead of New York time)
Times Used: 8:30 to 17:30
Lots Traded: 0.2 Lots
Stop Loss: 10 pips above or below the Highest or Lowest price in the three candle pattern.
Take Profit: 10 pips above or below the Highest or Lowest price in the three candle pattern.
EURUSD
GBPUSD
EURGBP
What Conclusions Can Be Drawn?
These patterns and the timeframe for the patterns simply does not work when implementing conditions to ensure that Stop Losses and Take Profit points that do not result in errors when automating. EURUSD can generate great returns during the July 1, 2016 to June 30, 2018 time period from 13:30 to 15:30, but this is a phenomenon that took place from 2016 going forward to the present time.
Candlestick Patterns like the Three Candle Patterns shown in this article are just not stable even with a Risk/Reward ratio that is nearly 3:1. Peak period trading and scalps can be extremely volatile and subject to trading noise.
Sometimes, strategies work and sometimes they do not. This particular approach is not effective and that is even after making a reasonable modification of this strategy.
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