An Improved Moving Average Technical Trading Rule II: Can We Obtain Performance Improvements with Short Sales?

Abstract

In this paper we extend the methodology of our earlier work (Papailias and Thomakos, 2011) on a modified moving average technical trading rule by allowing short sales. We show how short sales change the trading rule which now acts as a dynamic trailing "stop-and-reverse", instead of a dynamic trailing stop as in the context of "long-only" trades. Then we empirically examine the performance of our modification in the context of a "long/short" trading approach and discuss the differentiation and implications in strategy performance. We compare both the modified version of our trading rule with the standard moving average approach and also compare the long/short approach with the long-only approach of the earlier paper.

Keywords: ETF, Exchange Rate, Moving average, Price cross-over, S&P500, Short Sales, Stop and Reverse, Threshold, Trailing stop, Technical analysis, Technical Trading, Trading strategies

JEL Classification: C00, C10, C50, G00, G11, G14, G15, G17