Statistical Testing of DeMark Technical Indicators on Commodity Futures

25 Pages Posted: 6 Dec 2015  

Marco Lissandrin

ETH Zurich

Donnacha Daly

ETH Zurich

Didier Sornette

Swiss Finance Institute; ETH Zürich - Department of Management, Technology, and Economics (D-MTEC)

Date Written: November 2015

Abstract

We examine the performance of three DeMark indicators (Sequential, Combo and Setup Trend), which constitute specific implementations of Technical Analysis often used by practitioners, over 21 commodity futures markets and 10 years of data. Our backtests characterise the predictive power of these indicators. Market entry signals are tested by comparing conditional returns (i.e. conditioned on the entry signals) to unconditional returns. For the analysis of trades, which also comprise market-exit signals, randomization tests have been performed for benchmarking. We generate the distributions of three performance metrics (mean return, profit factor and risk-return ratio) over different trade holding horizons and compare them with their randomized versions. We have further checked the impact of the rolling strategy of future contracts on the performance of the DeMark indicators. For the period from Jan. 2004 to Jan. 2014, our results suggest statistically significant predictive power on a wide range of commodity futures.

Keywords: Technical Analysis, Back-Testing, Permutation Test, Financial Markets, Commodity Futures, Contract Roll-Over

JEL Classification: C12, G14, G17

Suggested Citation

Lissandrin, Marco and Daly, Donnacha and Sornette, Didier, Statistical Testing of DeMark Technical Indicators on Commodity Futures (November 2015). Swiss Finance Institute Research Paper No. 15-56. Available at SSRN: https://ssrn.com/abstract=2696155

Marco Lissandrin (Contact Author)

ETH Zurich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

Donnacha Daly

ETH Zurich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

Didier Sornette

Swiss Finance Institute ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

Scheuchzerstrasse 7
Zurich, ZURICH CH-8092
Switzerland
41446328917 (Phone)
41446321914 (Fax)

HOME PAGE: http://www.er.ethz.ch/

Paper statistics

Downloads
718
Rank
26,705
Abstract Views
2,055