Is the Candlestick Technique as a Short-Term investment Strategy Effective in China's Stock Markets"

by Said Atri, SUNY-Oswego

Developed by Japanese rice traders in the 17th century, the candlestick technical trading strategy has been one of the popular short-run trading schemes among investors in some Asian equity markets. In this paper we test five specific types of short-term candlestick reversal patterns, namely, engulfing, harami, kicking, cross, and piercing, for predicting the short-run movements of stock prices following a trend reversal. Based on our statistical analysis of the daily trading records of Chinese stock markets over the period 1999 through 2008 we have concluded that bearish harami and cross signals are reliable in predicting downward reversals while bullish piercing, engulfing, and cross signals are profitable in highly volatile small cap stocks.