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First Page

62

Last Page

94

Abstract

Japanese Candlesticks is a technique for plotting past price action of a specific underlying such as a stock, index or commodity using open, high, low and close prices. These candlesticks create patterns believed to forecast future price movement. Although the candles’ popularity has increased rapidly over the last decade, there is still little statistical evidence about their effectiveness over a large number of occurrences. In this work, we analyze the predictive power of the Shooting Star and Hammer patterns using over six decades of historical data of the S&P 500 index. In our studies, we found out that historically these patterns have offered little forecasting reliability when using closing prices but were highly reliable when using high price for the Shooting Star and low price for the Hammer.

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