Are Candlestick signals 100% Effective?
Candlestick signals have been around for nearly four decades. They have been extensively studied by the Japanese rice traders, who made huge fortunes applying them to rice trading. The signals, especially the major candlestick signals, are known to occur frequently and lead to predictable, high probability results. However, we are still dealing with probabilities. A given set of candlestick buy scenario has a very high percentage of working as expected. Combine that knowledge with western technical analysis and the probabilities increase even further. Some statistics put this number as high as 75-80%. That still means the other 20-25% of the time, the scenario will fail. Knowledge of candlestick signals and the inherent psychology associated with their construction puts the trader in a comfortable position to take a small stop loss in these cases. However, the signals are going to work most of the time leading to higher overall portfolio returns.
There is no system in the world which is 100% accurate. (Even if there was such a system, chances are pretty high, it will not be floating on the information super highway!). What traders and investors need to focus on is this: what are the probabilities of this trade/investment to appreciate from that point on? Candlesticks excel in this regard. It is our sincere hope that all those who put their hard earned money in the market learn these tools and educate themselves.
Always trade with the probabilities!