212 Candle Pattern

The 212 Candle Pattern is something i have come across recently. I'm sure there is other people who use the same formation, but as far as i'm aware i'm the first person to actually publicly talk about it. The candle pattern aim is to predict the next bar, not the next 2, 3 or 5 but only the next bar. This especially works well on the Hour 4 chart or Daily.

Aim: To predict the next bar
Success Rate: After backtesting (You can do this too) you will find a high ammount of probable trades. After i tested around 100 of these patterns it was successful at predicting the next bar 70% of the time.

Most traders try and make trading systems difficult, but in fact trading can be as simple as you make it.

The Name: The name of the pattern is basically what it says on the tin. 2 Bull or Bear candles followed by an opposite candle, then followed by 2 more Bull or Bear candles depending whether you're buying or selling. For instance, in an up trend you want to spot two bull candles followed by a bear candle followed by two more bull candles. After seeing this formation you can be confident that the fifth candle will be bearish.



Here is another example of a trade.



Why does this pattern work?
This pattern seems to work well as a pull back system. The candles show indecision in the market and a war between both bulls and bears. A retracement already happened once after the first two candles and that's why we hope history will repeat its self again.

Example of a bad trade:



Another bad trade



Examples of Good trades which work well. To identify the trend try to use a 50 EMA or 20 EMA to filter the signals. Also note that we're only predicting the next bar, not the next 3,4 or 5 bars. Don't be greedy.



Timeframe: H4, Daily, Weekly, Monthly

Stop / Take Profit: Haven't worked this out yet

If there are 4 green bars and 1 red bar, the bulls are charging. It would be suicidal to go stand in front of them. As shown by the bad trade, you'd get flattened by the stampede.

Curve fitting historical bars that don't fight back is not much use. Magic pattens are best tested against a real money micro account. That way you get to eliminate them quickly.

One thing worth noting is that the guy/entity taking the other side of your trade doesn't respect bars. Their only interest is to buy low, and sell high. So pattern searching could be in vain because the future bars adapts to your current action. In other words the bars yet to appear will often be contrary to your interest.

A quick scan at weekly and monthly charts suggests that this works.

To filter bad trades, instead of an entry right at the pattern close, I would enter if the following candle show momentum in the right direction (entry at previous candle break).

But by the time the momentum is certain, the move could be over. Filtering may not necessarily be better than following the pattern blindly.

CHF/JPY currently has this 12121 pattern in the daily time frame. How many here would have dared to go counter trend right at the bottom ? Short of complete beginners, I'd say none.

Here could be an example of someone taken to the cleaners for doing 12121. Perhaps he would be saved if he did 12131. But then the guy/entity on the other side of the trade might want to do silly buggers with the next bar.

I think this would be good for renko or range bars, just finding the right setting might need to based on the pair you are watching % daily movement, because using defaults settings will just you a lot of bars that mean nothing in relation to this strat.

Little help to find the pattern

edit:
modified version that checks the candle b4 pattern start

I will check it out but thanks all the same. Keep in mind people you should be able to trade it with a pretty tight stop and positive (maybe 2:1) Reward to risk. Accept the losses, nothing is 100%

jt

Interesting. Not sure about spot forex but this strategy can be used in binary option trading.

Great sharing. Thanks.

However you missed the fact that the first "2" of the pattern must be 2 and only 2 ... not 3-4 or whatever. That means that the candle before the pattern start must be opposite.

You can see it explained in the bad examples pictures posted by the thread starter.

70% winning rate of predicting the color of the next candle would be profitable only if you would've tested for a 1:1 risk/reward ratio (including commissions). If you decide to put your stop under the wick of the signal candle, for longs for example, enter at the signal candle (bear) close and exit at the close of the bull candle, then RR will fluctuate. You have to backtest fixed RRs or if you prefer instead to have variable stops (under/above the wicks) and exits at the close of the candle, then you'll have to calculate the R-multiple.

Hi,

I've quickly made an EA to test the 212 pattern with different options.

I hope that this will be helpful in evaluating this method and probably enhance it.

I ran a test on E/U H4 for 2013 and it was profitable. Results attached.

Regards,

Abokwaik

update now availlable in post #8

This is not really a trading system.

This is a pattern like many other patterns. Just find out the best way to trade it ...

Post #8

Thanks.

if you trade the pattern only, I don't see it profitable

SL=TP=0 -> lifetime of the trade is one candle
otherwise until either sl or tp is hit

default lot is 0.01 so you may have to adjust to 0.1 or whatever if the account doesn't support micro

I don't see where the CHY/JPY has the pattern in the daily chart. The past 6 bars are alternating red and green. No two bars in a row there.

Looks like the USD/CAD has this pattern today. I don't know if this is a good trade though with the US having a bank holiday. Seems there have been some good news for the CAD recently and the chart shows a double top.

Any thought?