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Technical Analysis Strategies: Development of Heiken Ashi Stochastic

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  • Roy Trivedi, Smita

Abstract

The profitability of technical analysis is supported by empirical studies and anecdotal evidence from traders. A host of empirical studies have shown that technical analysis generates excess returns, eschewing the academic distrust of it (Pinches, 1970, Menkoff & Taylor, 2007, Surajaras and Sweeney 1992; Menkhoff and Schlumberger 1995; Neely 1997; LeBaron 1999; Saacke, 2002). This paper develops a new technical analysis strategy using the Heiken Ashi (HA) Candlesticks. Heiken Ashi is variant of the Japanese candlestick and tries to understand the trend generation in the market. If we change a regular candlestick chart to HA, we find a series of red or blue candles emerging which clearly demonstrates the trend. Using the trend reversal signals given by HA, I develop an indicator, the HASTOC, or HA stochastic which can be used to give buy and sell signals to the trader. The indicator is then back tested with an entry-exit strategy using the HASTOC on intraday hourly USD/INR data from May, 2018 to September, 2018 to confirm its profitability

Suggested Citation

  • Roy Trivedi, Smita, 2018. "Technical Analysis Strategies: Development of Heiken Ashi Stochastic," MPRA Paper 89594, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:89594
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    File URL: https://mpra.ub.uni-muenchen.de/90439/5/MPRA_paper_90439.pdf
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    References listed on IDEAS

    as
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    2. Lukas Menkhoff & Mark P. Taylor, 2007. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 936-972, December.
    3. Brock, William & Lakonishok, Josef & LeBaron, Blake, 1992. "Simple Technical Trading Rules and the Stochastic Properties of Stock Returns," Journal of Finance, American Finance Association, vol. 47(5), pages 1731-1764, December.
    4. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Technical analysis; Heiken Ashi; Stochastic;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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