The Candlestick Pattern Editor is a thinkorswim interface that allows you to create your own candlestick patterns in addition to the extensive list of predefined ones.
What's a candlestick pattern?
A candlestick pattern is a specific configuration of chart candles of certain shapes that were sometimes seen together on charts in a certain trend development scenario: continuation or reversal. Statistical consistency and logical rationale have made candlestick patterns a popular analysis tool in the Western world -- after centuries of usage in Japanese markets.
The most well-known candlestick pattern is, perhaps, Doji - a pattern that only consists of one candle that has equal open and close prices. This pattern is believed by many to indicate a soon trend reversal.
Where do I find these?
- Make sure the Charts tab is open. Click Patterns in the upper right corner of the working area.
- Click Select patterns... The Select Patterns dialog window will appear.
- Select the Candlestick tab. You will see a list of all available candlestick patterns (both pre-defined and those previously added by you).
- Click Create... below the list. This will open the Candlestick Pattern Editor window.
How do I create a candlestick pattern?
Let's say your pattern consists of seven candles*:
- the first two are up candles and the second one closes at a higher level than the first;
- then we have two candles whose direction and price levels do not matter to us;
- then there is a down candle which closes below the second candle's open;
- and, finally, there is a Doji that opens below the previous candle's low.
Here's an algorithm of creating such a pattern:
1. In the Candlestick Pattern Editor window, you can see a big gray candle with a , icon inside of it. Click on this candle and choose Up candle from the menu. This will add the first Up candle.
2. As our second candle is also an Up candle, repeat step 1. Note how the candles are both displayed on the pattern chart and listed in the Conditions area. If you change your mind about what the candle direction should be, click on the center point of that candle on the pattern chart or just use its drop-down in the Conditions area. Either action will prompt you to specify the candle direction. If you need to delete a candle, click on its center point and choose Delete or just click # in the corresponding row of the Conditions area.
3. Next, let's add two candles without a specified direction. Click on the gray candle and choose Mixed candles. By default, the editor will add 5 random candles: as we only need two, go to #3 in the Conditions area and change the Total to 2. Note that you can still specify how many Up, Down, and Doji candles you need in this random set in the same row of the Conditions area.
4. Next, we will need a Down candle and a Doji candle. To do so, click on the gray candle again or use the , icon in the Conditions area header.
5. Now, let's specify the price relations between the candles. First, move your cursor over the first candle: you will see five points appear above it. The point in the middle can be used for modification of the candle direction, while four others define price levels of open, high, low, and close. Drag the close price point - to the close price point of the second candle. Release the mouse button and then click Less. You will see a line that connects the two price points with the word Greater in the middle of it. In our case, this means that the close of candle 2 is greater than the close of candle 1.
6. Specify the relation between candle 2 and candle 4 by clicking on the second candle's open and dragging it to the fourth candle's close. Choose Greater. Note that the relations can be modified or deleted by either clicking on their respective icons on the pattern chart or using the list in the Conditions area.
7. Specify the price relation for the Doji candle: drag its low price point to the "Drop here to set as lowest" area that appears at the bottom of the pattern chart. By default, this will set this low price as the lowest in the entire pattern; however, you can make it the lowest among a number of preceding candles by specifying that number in the corresponding line of the Conditions area. Note that at any point of pattern creation you can change the order of candles by dragging-and-dropping them on the pattern chart (this will, however, dismiss all the pricing conditions previously defined for the affected candles).
8. Note that in addition to the mentioned price relations between candles, there are also "Equal", "Greater than or equal", "Less than or equal", "Not equal" , and "Near" (about equal**). Be sure to use these relations, should your pattern need one.
9. You can also view the thinkScript code that corresponds to your pattern by moving to the thinkScript tab.
10. Customize the display of the signals to be provided by the candlestick pattern: choose an icon and a color in the corresponding controls above the pattern chart.
11. Click Save. Your pattern will be added to both Available patterns and Displayed patterns lists.
12. Once you've finished with your pattern, click OK so the system will start looking for your pattern on chart.
13. You can also use your custom candlestick patterns as study filters in Stock Hacker. To do so, navigate to the Stock Hacker tab and click Add study filter. Click on the default study in the filter and replace it with your candlestick pattern, which you will find in the User Defined group.
*For illustrative purposes only.
**Here, "About equal" and "Near" define a price relation where the difference between the absolute values of two chosen points does not exceed 5% of the mean candle range of the previous 20 candles.