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Back Home Departments Traders' Tips AIQ: THREE BLACK CROWS PATTERN

AIQ: THREE BLACK CROWS PATTERN

The Fibonacci time zones discussed in “Automated Techniques For Intraday Traders” by Andrew Coles in this issue can be implemented using the Fibonacci time zone chart tool in Aiq with no additional programming required.

Thus, I am instead providing code for the “Three Black Crows” candle pattern that is discussed in Thomas Bulkowski’s June 2011 article, “Top 10 Candles That Work.”

Coding candlestick patterns requires quite a bit of interpretation, since these patterns are described in relative terms like a “tall” candle or “closes in the lower portion of the bar.” Depending on the interpretation given to these relative terms, we can get different results. In my code set, shown below, I provide inputs that allow for some of the adjustments. The three black crows pattern has the following rules:

  • Must have three tall candles in a row
  • Pattern occurs in an uptrend and the first candle is the highest high
  • The last two candles must open in the real body range of the prior candle
  • All three must close near the low
  • The last two candles must have lows that are lower than the prior low.

“Tall” means that the bars’ high–low range is greater than the 10-day average range that occurs just prior to the start of the pattern. An uptrend is defined as a linear regression slope of the closes greater than zero. “Closing near the low” is based on how many candle zones are input, which are then used to divide the range of the bar into zones. “Closing near the low” means that the close must fall in the lowest zone. In addition, the author suggests testing in a bull market. Bull market is defined here as when the 200-bar moving average of the Standard & Poor’s 500 is greater than it was 10 bars ago. A bear market occurs whenever it is not a bull market.

I tested the pattern by entering at the close on the day the pattern is complete and exiting at the close six days later. This provides a test with five overnights and five full bars held after the pattern completes. I used the Russell 3000 list of stocks and tested from 1/15/1970 to 6/13/2011. In the table in Figure 8, I show the comparative results of bull, bear, and combined bull and bear. It appears that this pattern works in both bull and bear markets, but there may not be enough signals to build a trading system from just this pattern alone.

Software Screen-capture

FIGURE 8: AIQ SYSTEMS, THREE BLACK CROWS PATTERN. This table shows the metrics for the three black crows candle pattern for the test period 1/15/1970 to 6/13/2011 using the Russell 3000 list of stocks.

The Aiq code is shown here and the Eds file for this technique can be downloaded from www.TradersEdgeSystems.com/traderstips.htm.

AIQ code for three black crows pattern

!TOP 10 CANDLES THAT WORK: THREE BLACK CROWS 
!Author: Thomas N. Bulkowski, TASC June 2011
!Coded by: Richard Denning 6/14/11

!INPUTS:
RangeLen 	is 10.
CandleZones 	is 4.
HHLen 		is 10.
UpTrendLen 	is 10.

! ABBREVIATIONS:
C 	is [close].
C1	is valresult(C,1).
C2	is valresult(C,2).
H 	is [high].
L 	is [low].
L1	is valresult(L,1).
O 	is [open].
O1	is valresult(O,1).
OSD 	is offSetToDate(month(),day(),year()).

!BULL / BEAR MARKET DETERMINATION:
SPXc is TickerUDF("SPX",C).
Bull if simpleavg(C,200) > simpleavg(C,200,10).
Bear if not Bull.

!FUNCTIONS AND RULES FOR THREE BLACK CROWS CANDLE PATTERN:
Range is H - L.
HHoffset is scanany(H = ∧highresult(H,HHLen),HHLen) then OSD.
AvgRng is simpleavg(Range,RangeLen,∧HHoffset).
LowerZoneC if C < L + (Range * 1/CandleZones).
Tall if Range > AvgRng.
BlackCrow1 if Tall 
	and LowerZoneC 
	and slope2(C,UpTrendLen) > 0 
	and  H = highresult(H,HHLen).
BlackCrow2 if Tall 
	and LowerZoneC 
	and O <= O1 
	and O >= C1.
ThreeBlackCrows if valrule(BlackCrow1,2) 
	and countof(BlackCrow2,2)=2 
	and countof(L < L1,2)=2.
Bull3BlackCrows if Bull and ThreeBlackCrows.
Bear3BlackCrows if Bear and ThreeBlackCrows.

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

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