Edition

IFTA JOURNAL
2017 EDITION
The Period of Data Analysis
A period of 11 years was chosen to apply the study on the
shares of the companies. This included 111,469 trading days
during the period from 31-08-2003 to 31-08-2014 because this
period reflects all phases of the financial markets—uptrends,
downtrends, and sideways movements.
The Interval Used in the Analysis
The Japanese candles often reflect the psychological state of
the traders during a short or intraday time period. 4 Therefore,
the researcher focused on the daily interval in this study, where
each candle in the charts and statistics used in this study
represents one trading day.
The Source of the Data Used in the Analysis
We used the historical data service, “Data Link data” from
Reuters, because Reuters is a specialized company and is
reliable in providing the financial market data.
The Programs Used in the Analysis
• Metastock Version 10.1.
• Microsoft Office Excel 2013.
The Conditions of the Study
The following is a detailed presentation of the conditions in
identifying the technical cases in this study.
The conditions in determining the uptrend and downtrend
The determination of the uptrend was at least achieved
through two of the following conditions:
• Movement of 5-day exponential moving average above the
8- and 13-day exponential moving averages, with movement
of the 8-day exponential moving average above the 13-day
exponential moving average.
• The value of the positive Directional Index (+DI) for 13 days
higher than the 20 level, and the indicator moves above the
negative Directional Index (-DI).
• The value of the Average Directional Movement (ADX) for 13
days higher than the 20 level.
• Formation of at least five successive rising days. 5
The determination of the downtrend was at least achieved
through two of the following conditions:
• Movement of 5-day exponential moving average below the 8-
and 13-day exponential moving averages, with movement of
8-day exponential moving average below 13-day exponential
moving average.
• The value of the negative Directional Index (-DI) for 13 days
higher than the 20 level, and the indicator moves above the
positive Directional Index (+DI).
• The value of the Average Directional Movement (ADX) for 13
days higher than the 20 level.
• Formation of at least five successive failing days. 5
The conditions of determining the successful deal
After closing above the upper filter (F1) of the Japanese
candlestick pattern, the deal was considered successful when
accessing the first bullish target level (bullish target 23.6%).
But for the purposes of this study, and to make integrated and
comprehensive statistics on the five bullish target levels, the deal
will remain open until the highest target level (bullish target 100%)
is accessed, or even closing below the level of the lower filter (F2).
On the other hand, after closing below the lower filter (F2)
of the Japanese candlestick pattern, the deal was considered
successful when accessing the first bearish target level (bearish
target 23.6%). But for the purposes of this study, the deal will
remain open until the lowest target level (bearish target 100%) is
accessed, or even closing above the level of the upper filter (F1).
The conditions of determining the failed deal
After closing above the upper filter (F1) of the Japanese
candlestick pattern, the deal is considered a failed deal in the
case of closing below the lower filter (F2) of the pattern (stop
loss level) before accessing the nearest bullish target level
(bullish target 23.6%). On the other hand, after closing below
the lower filter (F2) of the pattern, the deal is considered a
failed deal in the case of closing above the upper filter (F1) of the
pattern (stop loss level) before accessing the nearest bearish
target level (bearish target 23.6%).
The conditions of determining the patterns confirmation filters
to calculate the target levels in this study
This study focuses on the confirmation of the filter patterns
that contain 4 to 10 candles only, including a candle (or candles)
of Japanese candlestick patterns. However, this method can be
applied to any number of candles inside the filters.
After determining the uptrend and downtrend on the basis of
the conditions of this study, we determined the upper and lower
filters on the first pattern that appears of Japanese candlestick
patterns, and focused on this pattern until closing above the
upper filter or below the lower filter. Intraday breakout is not
taken into account, whether by shadows or by the open. The
focus is only on close above the upper filter or below the lower
filter. After that, target levels were calculated, as explained in
this study and according to the specified conditions.
The first step in determining the upper and lower filter will
be on the first candle that represents one of the single Japanese
candlestick patterns, and if the candle that appears directly after
the first candle completes a double pattern, in this case the focus
is on determining the upper and lower filter on the double pattern.
And if the candle that appears directly after the first two candles
directly completes a complex pattern, in this case the focus is on
determining the upper and lower filter on the complex pattern,
and so on, on the condition that such candles successively will
jointly make one of the Japanese candlestick patterns.
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