Bull flag pattern recognition: Evidence from the BOVESPA index

Júlio Lobão, Luís Pacheco, António Fernandes

Abstract


This paper studies the predictive power of technical analysis using bull flag patterns based on a template matching technique. This method is applied to the stock market of Brazil (BOVESPA), for the period from February 1st 1995 to December 30th 2021. The empirical results demonstrate that bull flag trading rules can correctly predict the price movement direction of the index. Technical analysis achieved positive and significant annualized excess profits compared to the buy everyday approach, even when considering transaction costs. Moreover, shorter fitting windows and better quality of price fit values for lower holding periods are associated with better performance.


Keywords


Technical analysis, Trading rule, Template matching technique, Bull flag pattern, BOVESPA index.

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Portuguese Journal of Finance, Management and Accounting

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