The profitability of candlestick charting in the Taiwan stock market

•The contribution is devising a new approach to test candlestick charting.•Four patterns are profitable for the Taiwan stock market.•The bootstrap analysis and out-of-sample test are conducted to confirm the robustness of the results.•The current study compares the performances between candlestick patterns with two moving-average rules.•The current study examines whether or not candlestick charting can be improved by combining with moving averages.

The purpose of this study is to examine the predictive power of candlestick charting by using the daily data for the Taiwan stocks for the period from 4 January 1992 to 31 December 2009. The main contribution of this paper is devising a four-price-level approach to categorize the single-line patterns produced by candlestick charting in a systematic manner. The findings reveal that four patterns are profitable for the Taiwan stock market after transaction costs, and a bootstrap analysis, out-of-sample, and several sub-samples are examined to confirm the robustness of the results.