I recently tested a famous strategy that got around a 55 to 67% win rate.
But that win rate was actually caused by the trend.
The strategy itself didn’t work.
The strategy I’m talking about is the engulfing candlestick pattern strategy.
The same one that books and traders from the 60s to 90s have been promoting with high confidence.
But in reality, the data said it didn’t work at all.
But in the last few days, I was running some personal tests.
I analyzed more than 65 years of stock market data, especially the S&P500, and tested more than 1000 trades.
And then I couldn’t believe what I saw.
Look at this chart.
What do you think this is?
It’s the 65 years of win rate data of the engulfing candlestick pattern.
When the price moved up after a bullish engulfing pattern, and down after a bearish engulfing pattern, I counted them as working patterns.
That’s what the old books and trading gurus say these short-term patterns predict.
But in my around eight years of trading journey, these candlestick patterns have never consistently worked on their own.
And the tested data said the same thing in the recent video.
I always had to use the candlestick patterns with support resistance or something similar.
So in my entire trading journey, I kind of thought these old books and trading gurus were full of crap.
Like, they are only showing hand-picked setups to make us believe things work.
But this 65 years of data says something that completely changed my mind.
This win rate data starts from around 1962 and goes all the way to the current market.
Do you see any pattern yet?
You see, according to this data, back in the old days, these candlestick patterns used to work excellently.
As you can see on this chart, the win rate of engulfing patterns was as high as 75% back then.
And it only went below 60% consistently around the year 2000.
In other words, these old trading gurus and books were absolutely right for their time.
These patterns used to work back in the day with a high accuracy of around 65 to 75%, especially on the S&P 500 stock market index.
No wonder they wrote books about it and shared examples with high confidence.
At first, I thought the data was wrong because initially, I only tested the bullish engulfing pattern.
And if you have seen the previous video, you will know that the bullish engulfing pattern works better than the bearish engulfing pattern on the stock market one-day time frame.
That’s because the stock market moves in an uptrend in the long run.
So, most things you buy in this uptrend make a profit and get a high win rate in the long run.
So, initially, I thought the uptrend was making the bullish engulfing pattern profitable in the old days as well.
But then I tested the bearish engulfing pattern, and that too got an excellent win rate back in the old days.
In other words, the candlestick pattern as a whole was actually working on its own, not just the bullish engulfing pattern because of the trend.
But over time, the data says the win rate has been going down and down.
The candlestick patterns on their own no longer work like before.
But why did the candlestick patterns lose their accuracy over time?
Well, maybe it’s because of the market.
The market from 60 years ago was much different than what the market is now.
Even the price movement looks quite different than before.
But then one might say, after these working strategies got popular because of books, they lost their effectiveness.
Like the more people know and use the strategy, the less effective it becomes.
But if we use that logic, then on the Trading Rush channel, I have tested many different strategies that worked according to data.
So maybe in the next 60 years or so, all these strategies will stop working as well.
But then again, the only way to stay profitable in the market is to constantly adapt to new things.
Many things that worked 60 years ago or even 20 years ago probably don’t work now.
And what works in the current age will probably not work 20 years in the future.
So, there are 2 important things you need to know as a trader.
If you see an old strategy, maybe don’t blindly use it.
If the market is not the same, then why would you use the same strategy?
Maybe test it first to see if it still works.
The second thing is, if you want to trade for a living or keep making profits for many years, then you have to learn how to adapt to the market.
If you don’t, the market will definitely change in the future, and you will be left behind.
Seriously, even in my 8 years of trading, which looks tiny in this 65 years of data, I have seen the market change multiple times.
I somehow also experienced once in a decade opportunities, such as market crashes, 3 times in a few years.
But in all seriousness, one of the main reasons I was able to survive around 8 years of trading was by adapting to the market.
Even in the last 6 months, I had to adapt to the market around 2 times.
I spent like 2 months analyzing what would work in the current market.
And then on the very first day of this year, I shared how I’m going to adapt to the market using data with Patreon supporters.
I adjusted my stop-loss rules and switched to a higher 80% win rate strategy because of all the big news moves.
If I had stuck with how I was trading even a year ago, I would have lost a lot of money in the current market.
So, you have to learn how to adapt no matter what.
It’s the only way to survive in trading!
Thanks for watching!