The combination of multiple candlesticks forms patterns that contain relevant information about current and future market behavior. There is also a substantial group of single-candlestick patterns that signal the prevailing market sentiment.
Typically, candlestick patterns are interpreted subjectively, based on the behavioral logic of the market.
Quantitative analysis of candlesticks provides an alternative approach to gaining additional and relevant insight from this highly popular price representation method, and the Candle Code was developed with this specific goal in mind.
The Candle Code Structure
A candlestick consists of a body and its respective upper and lower shadows. The formula used to quantify a candlestick assigns the highest weight to the body color, followed by its size, and finally lower weights to the upper and lower shadows.
The sum of these four elements results in the Candle Code value, which ranges from 0 to 127. The plotted curve is then smoothed by two exponential moving averages (3-period and 21-period EMAs), with the final values fluctuating within an approximate range of 20 to 80. The classification of body and shadow sizes (small, medium, large) is determined by standard deviation.
Applying It to Your Platform
You can add it to your chart by following the steps below: Click on the View Menu, select Indicators, and then choose Candle Code.
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