Abstract

https://ssrn.com/abstract=932984
 
 

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The Predictive Power of Price Patterns


Gunduz Caginalp


University of Pittsburgh - Department of Mathematics

Henry Laurent


Mesirow Financial Investment Management


Applied Mathematical Finance, Vol. 5, pp. 181-206, 1998

Abstract:     
Using two sets of data, including daily prices (open, close, high and low) of all S&P 500 stocks between 1992 and 1996, we perform a statistical test of predictive capability of candlestick patterns. Out-of-sample tests indicate statistical significance at the level of 36 standard deviations from the null hypothesis, and indicate a profit of almost 1% during a two-day holding period. An essentially non-parametric test utilizes standard definitions of three-day candlestick patterns and removes conditions on magnitudes. The results provide evidence that traders are influenced by price behavior. To the best of our knowledge, this is the first scientific test to provide strong evidence in favor of any trading rule or pattern on a large unrestricted scale.

Number of Pages in PDF File: 25

Keywords: candlestick patterns, statistical price prediction, price pattern, technical analysis

JEL Classification: C12, G12


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Date posted: September 27, 2006  

Suggested Citation

Caginalp, Gunduz and Laurent, Henry, The Predictive Power of Price Patterns. Applied Mathematical Finance, Vol. 5, pp. 181-206, 1998. Available at SSRN: https://ssrn.com/abstract=932984

Contact Information

Gunduz Caginalp (Contact Author)
University of Pittsburgh - Department of Mathematics ( email )
507 Thackeray Hall
Pittsburgh, PA 15260
United States
412-624-8339 (Phone)
412-624-8397 (Fax)
Henry Laurent
Mesirow Financial Investment Management ( email )
350 N. Clark
Chicago, IL 60610
United States
312 595 7802 (Phone)
312 595 6988 (Fax)
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