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A New Recognition Algorithm for “Head-and-Shoulders” Price Patterns

Chong, Terence Tai Leung and Poon, Ka-Ho (2014): A New Recognition Algorithm for “Head-and-Shoulders” Price Patterns.

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Abstract

Savin et al. (2007) and Lo et al. (2000) analyse the predictive power of head-and-shoulders (HS) patterns in the U.S. stock market. The algorithms in both studies ignore the relative position of the HS pattern in a price trend. In this paper, a filter that removes invalid HS patterns is proposed. It is found that the risk-adjusted excess returns for the HST pattern generally improve through the use of our filter.

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