The Validity Test Of Candlestick Chart Technique Based On Quantification Method

With the development of Chinese stock market,the number of investors in the stock market has increased rapidly,and more and more investors have attached importance to securities investment methods.The securities investment methods in the market can be roughly divided into three categories:technical analysis,fundamental analysis and academic theoretical analysis;As one of the most intuitive trading methods,technical analysis is widely sought after by investors because of its low threshold and easy-to-understand characteristics.Candlestick chart is also the basis for investors to understand the stock market.It is a compulsory course for investors to master the related technology of Candlestick chart and make use of Candlestick chart signals to trade.The technical effectiveness of Candlestick chart is closely related to the Efficient market theory.While verifying the technical effectiveness of Candlestick chart,this paper explores whether Chinese stock market has reached Weak form set.Although technical analysis has many supporters in the stock market,it lacks theoretical support.Many scholars have verified the effectiveness of technical analysis from theoretical and empirical aspects,but the conclusions drawn are contradictory.This paper has improved on the basis of existing research,especially in the verification of the effectiveness of technical analysis.By combining technical analysis signals with Quantification trading,it quantifies the relevant indicators of Candlestick chart,constructs the trading strategy of Candlestick chart indicators,and back tests the effectiveness of the strategy by using stock historical data.In this paper,the research on the effectiveness of the Candlestick chart technical analysis method is different from the grouping comparison or event research method generally adopted in the previous literature.Instead,the firm offer back tests method is adopted,taking into full consideration of various taxes and fees,integral multiple transactions,market liquidity and other issues faced by real transactions.In order to ensure the objectivity of the back tests’results,this paper adopts the generally accepted definition method of Candlestick charting,and combines the trend line to confirm the Candlestick chart signal,and then converts it into Python quantitative transaction code,this paper constructs the trading strategy based on the Candlestick chart,and back tests the effectiveness of the strategy by using historical data to draw conclusions.This paper constructs two different position holding strategies.As short selling is not allowed in the Chinese stock market,the effectiveness of the two-day Candlestick chart pattern under the fixed position period strategy only proves the bullish case.The results show that the fixed position strategy cannot help investors obtain excess returns.Secondly,the bullish Candlestick chart and the bearish Candlestick are classified according to the number of required Candlestick chart,and the strategies of buying when the bullish signal appears and selling when the bearish signal appears are adopted.The back tests shows that most of the strategies can obtain excess returns.Thirdly,using 30 constituent stocks of HS300 index to make a back test,the results show that the number of profitable stocks of the three-day Candlestick chart combination strategy is significantly more than the number of loss-making stocks,and the number of profitable stocks of other strategies is also greater than the number of loss-making stocks.In order to raise the stability of earnings,this paper finally combines the fundamental index with the technical analysis index,using the fundamental index to sift the stock pool,and selecting the timing of the Candlestick chart index,and finds that there is a trading strategy that can stably obtain excess earnings;The combination of the two index can effectively reduce the risk of trading using technical analysis alone.At last,this paper tries to use Fama three-factor model to explain the excess returns of the above strategies,and makes an analysis based on the conclusions of this paper,and puts forward some suggestions on trading in Chinese stock market according to the back test results of this paper.