Letters To S&C by Technical Analysis, Inc.
I read the article “The Eight Best Performing Candles” by Thomas Bulkowski in your November 2011 issue. I found it interesting that the bullish reversal pattern called three inside up was one of the top two best-performing candles. The other one, the above the stomach, I have never heard of, and I have most of the Japanese literature translated from 20 years ago. However, I’m sure there are some that I missed.
Your readers should know that the three inside up pattern was not an actual Japanese candle pattern but one that Norm North and I created about 20 years ago in an attempt to improve the performance of the bullish harami. We did this by adding an extra day to the harami, which gave a closing price above the second day’s body. And yes, it works quite well. There is also a three inside down pattern to enhance the bearish harami, and there are three outside up and down patterns to improve the bullish and bearish engulfing patterns.
Congratulations to Bulkowski for continuing his research on Japanese candle patterns. I especially agree with his comment about avoiding single-line candle patterns, as I say they should neither be traded nor ignored. However, there is always a message.
Gregory L. Morris
Greg Morris is author of Candlestick Charting Explained and Candlestick Charting Explained Workbook. —Editor