The effectiveness of bearish Japanese candlestick patterns in an up-trend of the NASDAQ-100 index is evaluated using genetic algorithms and based on the theory of contrarian thinking. The objective is to identify optimal entry points during reversals of the prevailing trend by leveraging bearish Japanese candlestick patterns. Twenty-six bearish patterns were analyzed on daily price charts of the NASDAQ-100 from 2011 to 2023. Genetic algorithms optimize trading strategies by simulating and evaluating these patterns, using simple moving averages of 20 and 200 periods to confirm trends and corrections. The main findings highlight the effectiveness of the “Bearish Marubozu” and the combination of “Three Inside Down” with “Inverted Hammer.” The “Bear-ish Marubozu” showed a profit factor of 14.21 and an annual return of 10.47%, while the combined strategy achieved a profit factor of 10.18 and an annual return of 5.51%. These results, validated through backtesting and Monte Carlo analysis, demonstrate robustness and accuracy in predicting market movements. Future lines of research in this field are also presented.

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Contrarian Thinking: Bearish Patterns in Nasdaq-100 Uptrend Evaluated Through Genetic Algorithms

  • Franklin Gallegos-Erazo,
  • José Rodríguez-Flores

摘要

The effectiveness of bearish Japanese candlestick patterns in an up-trend of the NASDAQ-100 index is evaluated using genetic algorithms and based on the theory of contrarian thinking. The objective is to identify optimal entry points during reversals of the prevailing trend by leveraging bearish Japanese candlestick patterns. Twenty-six bearish patterns were analyzed on daily price charts of the NASDAQ-100 from 2011 to 2023. Genetic algorithms optimize trading strategies by simulating and evaluating these patterns, using simple moving averages of 20 and 200 periods to confirm trends and corrections. The main findings highlight the effectiveness of the “Bearish Marubozu” and the combination of “Three Inside Down” with “Inverted Hammer.” The “Bear-ish Marubozu” showed a profit factor of 14.21 and an annual return of 10.47%, while the combined strategy achieved a profit factor of 10.18 and an annual return of 5.51%. These results, validated through backtesting and Monte Carlo analysis, demonstrate robustness and accuracy in predicting market movements. Future lines of research in this field are also presented.