Are candlesticks charts effective in signaling future prices for Brazilian and American finished beef cattle?

Abstract

This study aims to assess the effectiveness of bullish and bearish candlestick patterns on the inflection and persistence of reversals in Brazilian and America finished beef cattle prices. To test the hypothesis of the effectiveness of the patterns on the inflection and on the persistence of price inflection, it was used daily series of prices between 2013 and 2021 in the Brazilian and American finished cattle future markets of Brasil, Bolsa, Balcão (B3) and Chicago Mercantile Exchange (CME), respectively. Then, the occurrences of sixteen high and low candlestick patterns were found, as well as the classification of the effectiveness indicators in three levels (below acceptable, satisfactory, and high). The results pointed out that six patterns are effective for price inflection (price reversal one day after the pattern) in both markets and other six patterns were effective in only one of the markets under scrutiny. Except for the morning star pattern, candlestick patterns were also found to be ineffective for reversal persistence of post-inflection prices in both markets. The study suggests that the researched patterns should only be used for decisions made within a one-day timeframe upon the occurrence of patterns, and it is not recommended to sustain a post-inflection position, i.e., from the second day after the occurrence of a given pattern. In practice, this indicates that the usage of candlestick patterns by decision-making agents does not allow one to guarantee profitability for more than a trading floor after the occurrence of these patterns.