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

41 Pages Posted: 17 Sep 2011

See all articles by Dušan Isakov

Dušan Isakov

University of Fribourg - Faculty of Economics and Social Science

Didier Marti

University of Fribourg - Faculty of Economics and Social Science

Multiple version iconThere are 2 versions of this paper

Date Written: September 15, 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.

Keywords: Technical Trading, Moving Average, Forecasting, Leverage, Market Timing

JEL Classification: C63, G11, G13, G17

Suggested Citation

Isakov, Dušan and Marti, Didier, Technical Analysis with a Long-Term Perspective: Trading Strategies and Market Timing Ability (September 15, 2011). Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1928101 or http://dx.doi.org/10.2139/ssrn.1928101

Dušan Isakov (Contact Author)

University of Fribourg - Faculty of Economics and Social Science ( email )

Fribourg, CH 1700
Switzerland

Didier Marti

University of Fribourg - Faculty of Economics and Social Science ( email )

Fribourg, CH 1700
Switzerland

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