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Technical Analysis with a Long Term Perspective: Trading Strategies and Market Timing Ability


Dušan Isakov


University of Fribourg - Faculty of Economics and Social Science

Didier Marti


University of Fribourg - Faculty of Economics and Social Science

June 22, 2011

International Conference of the French Finance Association (AFFI), May 11-13, 2011

Abstract:     
This paper extends the literature on the profitability of technical analysis in three directions. First, we investigate the performance of complex trading rules based on moving averages computed over longer periods than those usually considered. Different trading rules are simulated on daily prices of the Standard & Poor’s 500 index and we find that trading rules are more profitable when signals are generated over long horizons. Second, we analyse whether financial leverage can improve the profitability of different strategies, which appears to be the case when leverage is achieved with debt. Third, we propose a new market timing test that assesses whether a trading strategy can generate signals corresponding to bull and bear markets. The results of this test show that complex rules produce high proportions of accurate signals.

Number of Pages in PDF File: 43

Keywords: Technical trading, Moving average rules, Options, Forecasting, Leverage, Market timing

JEL Classification: C63, G11, G13, G17

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Date posted: May 9, 2011 ; Last revised: August 12, 2011

Suggested Citation

Isakov , Dušan and Marti, Didier, Technical Analysis with a Long Term Perspective: Trading Strategies and Market Timing Ability (June 22, 2011). International Conference of the French Finance Association (AFFI), May 11-13, 2011. Available at SSRN: http://ssrn.com/abstract=1833613 or http://dx.doi.org/10.2139/ssrn.1833613

Contact Information

Dušan Isakov (Contact Author)
University of Fribourg (Switzerland) - Faculty of Economics and Social Science ( email )
Fribourg, CH 1700
Switzerland
Didier Marti
University of Fribourg (Switzerland) - Faculty of Economics and Social Science ( email )
Fribourg, CH 1700
Switzerland
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