Is Candlestick Trading Accurate?

day trading technical indicators trading tools Aug 12, 2022
Is Japanese Candlestick Trading Accurate for Stocks and Options?

Beginner traders often get excited when they discover Candlestick trading. The charts offer a lot of information, are color-coded, and seem relatively straightforward to use compared to other trading strategies and techniques. The question is: Is candlestick trading truly an accurate way to boost your trading Odds? Let’s take a look.



First, if you’re an at-home or beginner trader and have never heard of candlestick trading, take some time to read our blog post on the Harami Cross Pattern (a strategy using candlestick charts) to learn the history and basics of candlesticks. 

The shortest version is that candlesticks are thought to predict future swings in security prices based on how they present in the charts. Technical traders will keep an eye out for certain patterns to indicate the impending trends and make buy or sell decisions accordingly. 

Here’s a note from Traveda about why traders love candlesticks:

Candlestick charts rank highly among the most favored and widely used price charts in the market and provide you with valuable information on price movements within a given timeframe. But more than that, a single glance at their color codes, shapes, and patterns show you all that is currently happening in the market.”

We would add that they help with viewing context on how the security or market arrived at the point that is being examined.



The accuracy of a candlestick chart to increase trading Odds is greatly shaped by the various market factors and conditions you trade under, such as timeframe. Different patterns also have different levels of success, like the Harami Cross Pattern we mentioned above. Even more so, what matters is what actually happens after a given candlestick pattern, which can even vary from symbol to symbol. Candlesticks are often not accurate enough for traders to solely rely on (no tool is 100% accurate). However, by combining candlestick patterns with other methods, such as using StockOdds data, trading Odds can be increased. Investopedia lays out a few other factors here as well. Certain Factors of the candlestick charts themselves also affect accuracy! These are: 

  1. Timeframe: The longer the period, the better. 
  2. Security: Some candlesticks work better for different kinds of securities, like large cap liquid stocks versus thinly traded small cap.
  3. Overall Pattern: Look at the general environment surrounding your perceived signals. The rest of the chart can be telling for why a signal did or did not occur. 
  4. Pattern and Signal Size: A larger pattern may create a more accurate signal.
  5. Number of Candles: The more candles involved in a pattern, the higher the accuracy.


As mentioned, candlestick charts contain a lot of information and are based on the high, low, open, and close for your selected timeframe. What’s missing, however, are the technical details about the market, such as why the open and close were so similar or different. Spending some effort on evaluating market context will go a long way when it comes to increasing the accuracy. The average success rate of some of the most accurate candlestick patterns comes out to at most, about 55% when used alone. 


Up Your Odds

Like most trading strategies, you always want to test your signals with a variety of trading strategies to boost your Odds. Candlestick charts are most useful for tracking past performance, identifying price levels, observing price discovery, price rejection and trends in certain markets. With our Odds Data, you can backtest your pattern with historical data across a variety of securities to make sure you’re reading the candlesticks correctly. We also highly suggest pairing your candlestick trading strategy with other indicators such as Connor’s RSI or Bollinger Bands, and then use our Web Screener to determine your opportunity with expectations of subsequent Performance on Average, Sharpe Ratio and Statistical Odds. Candlestick trading can be an excellent addition to any trading strategy when used correctly. 

Start Trading with Odds

Get access to the Seasonality Almanac Dashboard, as well as 1 basic course, for free!

Try for Free

Disclaimer: The contributor, as well as other StockOdds staff may have a position, or have recently closed a position, or are looking to open a position for any of the above named tickers. The views, thoughts, and opinions expressed in the text belong solely to the author. All future returns are hypothetical as market conditions can and do change. Past Trader performance may not be repeatable for a variety of reasons. There is a very high degree of risk involved in trading. There is Risk of Loss. Using Leverage can lead to increased losses. Shorting an equity has unlimited risk. Spread Trading can compound risk. Spread Trading increases commissions due to doing both sides of the pair. Holding costs can be significant if spread positions are held overnight. Traders and Investor should consult their accountant for taxation rules and guidelines. Past results are not indicative of future returns. StockOdds, Inc. and its websites and, and all individuals affiliated with these sites assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles, and all other features are for educational purposes only and should not be construed as investment advice. Information for any trading observations is obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness, and usefulness of the information. By consuming this content, you do so at your own risk. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates, partners, and principals of StockOdds, Inc. may have a position for or against, or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.