IDEAS home Printed from https://ideas.repec.org/p/sin/wpaper/14-a010.html
   My bibliography  Save this paper

Trend Definition or Holding Strategy: What Determines the Profitability of Candlestick Technical Trading Strategies?

Author

Abstract

We ask what determines the profitability of candlestick trading strategies. Is it the definition of trend and/or the holding strategy that one uses in candlestick charting analysis? To answer this, we systematically consider three definitions of trend and four holding strategies. Applying candlestick trading strategies to the DJIA component data, we find that regardless of which definition of trend is used, eight three-day reversal patterns with a Caginalp-Laurent holding strategy are profitable when we set the transaction cost at 0.5% and after we account for data-snooping bias, while the patterns with a Marshall-Young-Rose holding strategy are not profitable. For sensitivity analysis, we also find that our results are not qualitatively changed on a lower transaction cost of 0.1%, or when we conduct the subsample analyses based on three equal periods and three distinct market conditions. When considering a more volatile market, evidence in favor of candlestick trading strategies is strengthened. JEL Classification-JEL: C12, G10, G11

Suggested Citation

  • Tsung-Hsun Lu & Yi-Chi Chen & Yu-Chin Hsu, 2014. "Trend Definition or Holding Strategy: What Determines the Profitability of Candlestick Technical Trading Strategies?," IEAS Working Paper : academic research 14-A010, Institute of Economics, Academia Sinica, Taipei, Taiwan, revised Jul 2015.
    • Handle: RePEc:sin:wpaper:14-a010
    as

    Download full text from publisher

    File URL: https://www.econ.sinica.edu.tw/~econ/pdfPaper/14-A010.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shangkun Deng & Zhihao Su & Yanmei Ren & Haoran Yu & Yingke Zhu & Chenyang Wei, 2022. "Can Japanese Candlestick Patterns be Profitable on the Component Stocks of the SSE50 Index?," SAGE Open, , vol. 12(3), pages 21582440221, August.
    2. Kevin Rink, 2023. "The predictive ability of technical trading rules: an empirical analysis of developed and emerging equity markets," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 37(4), pages 403-456, December.

    More about this item

    Keywords

    Candlestick charting; Technical analysis; Trading rules; Behavioral finance; Step-SPA test;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sin:wpaper:14-a010. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: HsiaoyunLiu (email available below). General contact details of provider: https://edirc.repec.org/data/sinictw.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.