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Technical Analysis Strategies: Development of Heiken Ashi Stochastic

Roy Trivedi, Smita (2018): Technical Analysis Strategies: Development of Heiken Ashi Stochastic.

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Abstract

The profitability of technical analysis is supported by empirical studies and anecdotal evidence from traders. A host of empirical studies have shown that technical analysis generates excess returns, eschewing the academic distrust of it (Pinches, 1970, Menkoff & Taylor, 2007, Surajaras and Sweeney 1992; Menkhoff and Schlumberger 1995; Neely 1997; LeBaron 1999; Saacke, 2002). This paper develops a new technical analysis strategy using the Heiken Ashi (HA) Candlesticks. Heiken Ashi is variant of the Japanese candlestick and tries to understand the trend generation in the market. If we change a regular candlestick chart to HA, we find a series of red or blue candles emerging which clearly demonstrates the trend. Using the trend reversal signals given by HA, I develop an indicator, the HASTOC, or HA stochastic which can be used to give buy and sell signals to the trader. The indicator is then back tested with an entry-exit strategy using the HASTOC on intraday hourly USD/INR data from May, 2018 to September, 2018 to confirm its profitability

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