A STUDY ON PROFITABILITY OF BULLISH REVERSAL CANDLESTICK CHART PATTERNS: WITH SPECIAL REFERENCE NIFTY IT SECTOR

Abstract

This study explores the reliability and profitability of bullish reversal candlestick patterns within the Nifty IT sector, a prominent segment of the Indian stock market. Utilizing daily trading data from April 2014 to March 2024, the research focuses on five primary bullish reversal patterns: Hammer, Inverted Hammer, Harami, Engulfing, and Morning Star. The analysis employs a rule-based methodology to identify and evaluate the success rate of these patterns across ten leading IT companies listed on the NSE.

The findings reveal that two-day candlestick patterns, specifically Harami, demonstrate the highest reliability with a success rate of 72.85%, followed by Inverted Hammer and Engulfing patterns. In contrast, single-day patterns such as Hammer and three-day patterns like Morning Star exhibit lower formation frequencies and success rates. The study underscores the significance of candlestick charting in technical analysis, particularly for short-term trading strategies, and provides a ranked assessment of the selected patterns based on their predictive accuracy.

This research aims to assist investors in the IT sector by identifying reliable candlestick patterns that can enhance decision-making and optimize investment outcomes. The results suggest potential future research directions, including the application of candlestick analysis to other market indices for broader validation.