Candlestick effectiveness in signaling future prices for live cattle, arabic coffee, and corn
Abstract
Objective: This study aims to assess the effectiveness of bullish and bearish candlestick patterns in price inflection and price inflection persistence for live cattle, arabic coffee and corn at Brasil, Bolsa, Balcão (B3) stock exchange.
Method: A quantitative descriptive research was conducted. The equational rules of candlestick patterns and the estimation of effectiveness of these patterns in inflection and persistence were theoretically and methodologically grounded in the studies by Marshall et al. (2008), Horton (2009), Lu et al. (2015), Lu and Shiu (2016), Cohen (2020), Foroushany et al. (2020), and Heinz et al. (2021).
Originality/Relevance: The proposal was to examine the effectiveness of the technique in agricultural futures markets, as this environment, despite originating from the method (Nison, 1999; Murphy, 1999), is practically ignored in the field of theoretical-empirical studies, with only studies identified within the realms of stock, interest rate, and real estate markets.
Results: Results showed that most of the investigated candlestick patterns are effective at inflection price (price reversal one day after the pattern) on the markets under scrutiny. Candlestick patterns also proved to be ineffective for inflection price persistence, with the exception of the bullish pattern morning star for Live Cattle futures and the piercing line for Arabic coffee market. The persistence of price inflection for these patterns reached the third day after their occurrence, constituting a moderate inflection persistence. Theoretical/methodological/practical contributions: As a practical contribution, we suggest that these patterns be used only for decisions with time horizon of one day after its occurrence and it is not advised to maintain post-inflection position because, they don’t ensure profitability. As a theoretical contribution (literature), the study pointed out that the candlestick patterns corresponding to bullish and bearish inverses do not present a difference in effectiveness.
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References
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