Are candlestick trading strategies effective in certain stocks with distinct features?

While investors in the west are generally skeptical about the reliability of the candlestick technical analysis, this technique is commonly used in some Asian equity markets in short-term speculative investments. This paper examines the effectiveness of five different candlestick reversal patterns in predicting short-term stock movements. Using the two Chinese exchanges' data from 1999 to 2008, our statistical analysis suggests that bearish harami, and cross signals perform well in predicting head reversals for stocks of low liquidity, while bullish harami, engulfing, and piercing patterns were profitable when applied to highly liquid, small companies' stocks.