IoT Tutorial: Forecasting Market Psychology with SAS ESP

bkooman — Mon, 19 Sep 2022 22:41:00 GMT

Munehisa Homma was a rice merchant from Sakata, Japan who traded in the Dojima Rice market in Osaka during the Tokugawa Shogunate (18th century). He is sometimes considered to be the father of the candlestick chart, a form of technical analysis used in stock markets. He earned the nickname “the god of the markets” while accumulating a rumored net worth of $100 billion in today’s US currency.

Homma discovered that the price of rice was not only dictated by supply and demand, but also by the emotions of traders. Greed, fear, anxiety, and excitement can all contribute to market psychology. Market psychology is used to explain market movement that may not be explained by other metrics.

As previously stated, Homma is considered the father of the candlestick chart. A candlestick chart, or Japanese candlestick chart displays price movements over time. A candlestick contains the important information for one trading period (open, high, low, and close values). The trading period can be one day, 15 minutes, one hour, or any trading period as long as each candlestick represents the same time period. The candlestick chart identifies repeating patterns and trends.

SAS Event Stream Processing (ESP) is very powerful when it comes to detecting patterns of interest in real time. However, before any patterns can be detected the ESP model must create groups of values for each trading period (e.g., 60 minutes) and then find the open, high, low, and close values for each group (candlestick). This creates a continuously updating virtual candlestick chart.

ESP then analyses the virtual candlestick chart looking for specific patterns and alerts the user when a known pattern is detected. This allows the user to respond quickly. The patterns used in this project include Engulfing Bearish, Bullish Engulfing, Three Inside Up, and Three Black Crows. Each pattern includes its own forecast for short term price movement of the market.

This project is a great way to learn about creating groups, aggregating values by group, and detecting patterns using ESP. You can download the project from GitHub and execute the project yourself. Be sure to check it out.

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IoT Tutorial: Forecasting Market Psychology with SAS ESP