Trades Return Based on Candlestick Charts in Tehran Stock Exchange

Investors are always trying to predict stock prices in order to earn returns proportional to risk. One way to predict price is using candlestick charting which is common among analysts mainly due to its simplicity. So in this research we examine its profitability in different conditions.

For this purpose, daily stock price data of companies listed in Tehran Stock Exchange during 15 years from October 2003 to October 2018is used to calculate returns and winning rates of investment based on thirteen different candlestick charts in two horizon times of one day and ten days in different conditions of uptrends and downtrends for different turnover values.

The research findings show that regardless of the trend or trading turnover, the sell candlestick, when holding for one day, and the buy candlestick, when holding for ten days, have the highest returns (more than transaction costs). By examining candlesticks in uptrends and downtrends their performance will improve. Buy candlestick in uptrends for companies with medium turnover value has the best return when holding for ten days if we consider the trading turnover value. The results of the research can also be considered as a recommendation for adopting a short-term outlook in the bearish periods.

Based on the findings, investors can use the mentioned patterns to gain returns in the Tehran Stock Exchange based on their preferred time horizon, as well as ascending and descending conditions among the companies with different trading turnover value.