Estimating Correlation Dimension on Japanese Candlestick, Application to FOREX Time Series

Recognizing behavioral patterns of financial markets is essential for traders. Japanese candlestick chart is a common tool to visualize and analyze such patterns in an economic time series. Since the world was introduced to Japanese candlestick charting, traders saw how combining this tool with intelligent technical approaches creates a powerful formula for the savvy investors. This paper propose a generalization to box counting method of Grassberger-Procaccia, which is based on computing the correlation dimension of Japanese candlesticks instead commonly used 'close' points. The results of this method applied on several foreign exchange rates vs. IRR (Iranian Rial). Satisfactorily show lower chaotic dimension of Japanese candlesticks series than regular Grassberger-Procaccia method applied merely on close points of these same candles. This means there is some valuable information inside candlesticks.

Authors:

• S. Mahmoodzadeh
• J. Shahrabi
• M. A. Torkamani
• J. Sabaghzadeh Ghomi

Keywords:

• Chaos
• Japanese candlestick
• generalized box counting
• strange attractor.

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