Stalled Candlestick Pattern Explained & Backtested (2023)

The stalled candlestick pattern is a three-bar bearish reversal Japanese candlestick pattern best traded using bullish strategies in the stock market and bearish strategies in forex according to multiple decades of backtest data.

Crypto traders should avoid trading the stalled pattern due to insufficient data to determine the best trading strategy with any statistical significance.

Keep going if you want to learn what history says about trading this three-bar pattern.

What Is a Stalled Candlestick Pattern?

Stalled Candlestick Pattern Illustration © Analyzing Alpha
Stalled Candlestick Pattern Illustration

The stalled pattern is a three-bar bullish reversal pattern.

The stalled name comes from the candles appearing to stall in an uptrend on candlestick charts.

Before we determine if the data supports this claim, let’s learn how to identify it.

How to Identify the Stalled Candlestick Pattern

Stalled Candlestick Pattern on the Microsoft (MSFT) August 16th, 2021 daily chart
Stalled Candlestick Pattern on the Microsoft (MSFT) August 16th, 2021, daily chart

The following are the requirements for a valid rising stalled candlestick pattern:

  • Three consecutive bullish candles consecutively closing higher.
  • The first candle is bullish and long.
  • The second candle is bullish and long, with little to no upper shadow opening within or near the prior real body.
  • A third candle is small, bullish, and rides the shoulder, moving around the close of the previous.
  • The stalled pattern must occur in an uptrend.

The stalled pattern appears on Microsoft’s (MSFT) August 16th, 2021, daily chart. The price is in a bullish trend as it’s above the fifty-day moving average. The first two candles are bullish and large, with the second candle opening with the previous candle’s real body. The third candle is at the upper end of the last candle’s real body, fulfilling our stalled pattern requirements. 

Now that we know how to identify this stalling pattern, how do we kickstart our profits into high gear?

How to Trade the Stalled Candlestick Pattern

The stalled candlestick pattern is best traded as intended in the forex market using a modified entry and using a bullish mean reversion strategy in the stock market. Data-driven crypto traders will want to avoid this pattern due to insufficient daily data to determine statistically significant trading strategies.

But before we learn history’s best stalled pattern trading strategies, let’s learn how traditional traders stop portfolio profits in their tracks.

Stalled Pattern Bearish Reversal Trade Setup

Stalled Pattern Bearish Reversal Trade Setup on the Tesla (TSLA) September 18th, 2017 daily chart
Stalled Pattern Bearish Reversal Trade Setup on the Tesla (TSLA) September 18th, 2017, daily chart

Let’s practice identifying the stalled pattern.

The price is in a bullish trend as the pattern’s final candlestick closed above the fifty-day moving average. We have a large first bullish closing marubozu, a second closing marubozu opening within the prior real body range and closing higher, and a third bullish candle riding the shoulder of the previous, fulfilling the pattern requirements.

With the stalled pattern identified, traditional traders enter short at a break of the final candle’s low and set a stop loss above the same candle’s high.

Forex traders left money on the table using this approach. The optimal strategy is to go short when the price crosses below the last candle’s close, setting a stop loss above the high.

We can see on the Tesla (TSLA) September 18th, 2017, daily chart why this is advantageous. Data-driven traders enter earlier, increasing their profit potential while lowering risk.

Stock traders using this method made money in this trade, but they’re on the wrong side of history.

Stalled Pattern Bullish Mean Reversion Trade Setup

Stalled Pattern Bullish Mean Reversion Setup on the Adobe (ADBE) September 23rd, 2015 daily chart
Stalled Pattern Bullish Mean Reversion Setup on the Adobe (ADBE) September 23rd, 2015 daily chart

The price is above the fifty-day moving average, giving us a current bullish trend. There are three consecutive bullish candles. The second candle opens and closes higher than the first, and the third candle rides the shoulder of the previous.

With the pattern identified, data-driven stock traders wait for the price to cross below the pattern’s low and enter long when the price moves back above that low, setting a stop loss of one ATR.

We’ll use the Adobe (ADBE) daily chart on September 23rd, 2015.

The pattern low occurs on the first candle at $81.42. The price crossed below the low on September 28th, alerting traders. The price moves above our low on September 30th, triggering an entry. We see the price moved up and to the right jump-starting this stock trader’s profits.

Discussing profits, what can history tell us about the best stalled pattern trading strategies?

Does the Stalled Candlestick Pattern Work? (Backtest Results)

Using the following rules, I backtested the stalled candlestick pattern on the daily timeframe in the crypto, forex, and stock markets.

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5. 
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits are discussed in the how-to trade section above.
  • Confirmation must occur within three days of the pattern signal.

Similar Candlestick Patterns

Traders confuse the stalled pattern with other candlestick patterns. It’s critical not to stall your portfolio profits by identifying candlestick patterns properly.

Advance Block vs. Stalled Pattern

Advance Block Candlestick Pattern Illustration © Analyzing Alpha
Advance Block Candlestick Pattern Illustration

The advance block candlestick pattern is a three-bar bearish reversal that gets confused with the stalled pattern for a good reason. The only difference between the advance block and the stalled pattern is that the advance block has consecutively large wicks, which isn’t a requirement for the stalled pattern.

The Bottom Line

The stalled pattern is a three-bar bearish reversal pattern that’s best traded using a bullish mean reversion strategy in the stock market and as intended in the forex market. And while this pattern is good, it’s not one of the best candlestick patterns for swing trading.

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