Fuzzy Candlestick Approach to Trade S&P CNX NIFTY 50 Index using Engulfing Patterns

Stock market prediction is an important area of financial forecasting, which is of great interest to stock investors, stock traders and applied researchers. To determine the buy and sell time is one of the most important issues for investors in stock market. In this paper, a fuzzy approach using the famous candlestick method to stock market timing is investigated. Drawing candlesticks are very easy, but to make the system understand them is challenging. Using fuzzy logic first we try to make the system understand the candlestick formations and verify with what we can see and then we go on for forecasting the future trend using various candlestick techniques. The fuzzified candlesticks tend to represent the real market behavior more closely as done by humans. Here we have tried to develop a method by which fuzzification of candlesticks can be done and then by using the fuzzified candlesticks we can perform predictions of market movements with various candlestick patterns like Engulfing [2] and modified Engulfing (U-Turn) by establishing fuzzy rules. The type of real time data used here is the daily values of S&P CNX NIFTY 50 index used in National Stock Exchange of India for stock futures trading.