What Do We Know About the Profitability of Technical Analysis?

41 Pages Posted: 15 Aug 2007  

Scott H. Irwin

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

Cheol-Ho Park

Chungbuk National University

Abstract

The purpose of this paper is to review the evidence on the profitability of technical analysis. The empirical literature is categorized into two groups, early and modern studies, according to the characteristics of testing procedures. Early studies indicate that technical trading strategies are profitable in foreign exchange markets and futures markets, but not in stock markets. Modern studies indicate that technical trading strategies consistently generate economic profits in a variety of speculative markets at least until the early 1990s. Among a total of 95 modern studies, 56 studies find positive results regarding technical trading strategies, 20 studies obtain negative results, and 19 studies indicate mixed results. Despite the positive evidence on the profitability of technical trading strategies, most empirical studies are subject to various problems in their testing procedures, e.g. data snooping, ex post selection of trading rules or search technologies, and difficulties in estimation of risk and transaction costs. Future research must address these deficiencies in testing in order to provide conclusive evidence on the profitability of technical trading strategies.

Suggested Citation

Irwin, Scott H. and Park, Cheol-Ho, What Do We Know About the Profitability of Technical Analysis?. Journal of Economic Surveys, Vol. 21, No. 4, pp. 786-826, September 2007. Available at SSRN: https://ssrn.com/abstract=1006275 or http://dx.doi.org/10.1111/j.1467-6419.2007.00519.x

Scott H. Irwin (Contact Author)

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics ( email )

1301 W. Gregory Drive
326 Mumford Hall, MC-710
Urbana, IL 61801
United States

Cheol-Ho Park

Chungbuk National University ( email )

Chungbuk 361-763, Cheongju
Korea

Paper statistics

Downloads
38
Abstract Views
6,819