Statistical Testing of DeMark Technical Indicators on Commodity Futures

27 Pages Posted: 6 Dec 2015 Last revised: 20 Oct 2017

See all articles by Marco Lissandrin

Marco Lissandrin

ETH Zürich

Donnacha Daly

ETH Zürich

Didier Sornette

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

Date Written: October 15, 2017

Abstract

In this paper, 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 twenty-one commodity futures markets and ten years of daily data. Our work addresses price behaviour following new entry signals by studying whether, for short holding periods, the entry signals generated by these indicators can time the market moves and suggest the right side of the market (long or short). For example, we want to know how long we should hold or delay a trade before the price is expected to move significantly. The signals are sparse, as they mostly suggest entering the markets between one to five times per year. To adjust for the limited number of total days in which the trade signals are in-the-market, we generate the distributions of multiple performance metrics (mean return, profit factor and risk-return ratio) over different trade holding horizons, and compare them with their randomized versions, which have the same number of entry signals and the same number of holding days. The rolling strategy, which creates continuous futures data from separate contracts, plays a role in evaluating the statistical performance of these indicators. Overall, this paper gives more clarity to the predictive performance of these indicators as well as practical guidance on how to use them in a trading environment as generators of market entry ideas.

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 (October 15, 2017). Swiss Finance Institute Research Paper No. 15-56, Available at SSRN: https://ssrn.com/abstract=2696155 or http://dx.doi.org/10.2139/ssrn.2696155

Marco Lissandrin (Contact Author)

ETH Zürich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

Donnacha Daly

ETH Zürich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

Didier Sornette

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/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Southern University of Science and Technology

1088 Xueyuan Avenue
Shenzhen, Guangdong 518055
China

Tokyo Institute of Technology

2-12-1 O-okayama, Meguro-ku
Tokyo 152-8550, 52-8552
Japan

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1,190
Abstract Views
4,597
rank
19,060
PlumX Metrics