Fuzzy Candlestick based Stock Market Trading System using Hammer Pattern
نویسندگان
چکیده
The stock markets are sentiment driven markets. Human psychology plays an important part in deciding the market movements. Usually three types of sentiments are seen in the stock markets, namely bullish, neutral and bearish. The Bullish sentiment indicates that the buyers are more than sellers and the buyers are confident about the market, so they outnumber sellers causing the market prices to rise. The Bearish sentiment indicates that the sellers are more than buyers and the buyers are not very much confident about the market, so the sellers outnumber the buyers causing the market prices to fall. The Neutral sentiment indicates that neither buyers find enough confidence nor the sellers are aggressively selling, hence the market prices become range bounded around few points up and down. Market sentiments create momentum in the market, either bullish, bearish or neutral. The momentum remains in the market for few sessions from the day it originates. In the following section we would try to understand the Japanese candlesticks and their meaning as they are very useful in identifying the market sentiment. In figure 1.1, the dark candle or dark filled candle indicates that the closing was lower than the opening, which means bearish sentiment. The white or hollow candle in figure 1.2, refers to a market that closes above the opening range, meaning bullish sentiment. The location of a candlestick pattern formed helps in determining the potential reversal of trend or sentiment in the market. When reversal patterns are found in top of an upward rally, it indicates possible turnaround of the market to bearish momentum. Similarly when reversal patterns are found at the bottom of a selloff rally, it indicates a possible reversal of the market sentiment to upwards momentum. It is important to identify the patterns formed by the candlesticks and interpret the meaning of them. The candlesticks not only represent the values but also reflect the sentiment of traders in the market. Figure 1.3 shows the hammer formation. The hammer can be recognized by three criteria:1) The real body is at the upper end of the trading range, 2) A long lower shadow should be twice the height of the real body and 3) It should have no, or a very short, upper shadow. Figure 1.4 shows the same hammer but in inverted form. This formation has opposite implications as hammer.
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