Analysis of candlestick charts in the Tokyo stock exchange.

• Main Authors: Khoo, Belinda Geck Sin., Ng, Jennifer Soo Ern., Ng, Mei Hui.
• Other Authors: Bachmann, Ralph
• Format: Final Year Project
• Published: 2008
• Subjects: DRNTU::Business::Finance::Investments
• Online Access: http://hdl.handle.net/10356/10521
• Institution: Nanyang Technological University

It is hypothesized that stock price patterns (based on chart signals) may have predictive powers with respect to future stock returns. This happens because the investors’ perception of a share price can be affected by the stock price history. This report seeks to test the predictive powers of the candle stick charts of stocks listed within the Tokyo Stock Exchange. The candlestick patterns are recognized via an automated task and the sub-samples of candlestick patterns are cross-tested for its robustness in predictive power. The principle findings indicate that there is indeed a limited degree of predictive power in candlestick charts. However, it affords only a minimal amount of competitive edge in stock trading. This could be attributed to several potential reasons. First, the Tokyo Stock Exchange (TSE) market may be efficient with its substantial number of investors and trading transactions. Second, it may also be that the methodology adopted for our analysis had led to such results as the actual price trends during that prior 10-days period was not taken into account.