The Use of Technical Indicators in the Trading of Second-Hand Dry Bulk Ships

Abstract

Sale and purchase of second-hand vessels is a key source of profits for the dry bulk shipping companies, and profitability of such trading is dependent on timing decisions. Using a sample of ship prices from June 1986 to June 2014, this study applies technical indicators to identify optimal trading timing for dry bulkers. The simulated results indicate that, deducting financing costs and without accounting for ship operating income, the strategy based on technical indicators still outperforms the buy-and-hold strategy. However, the vessel sale and purchase market is relative illiquid, resulting in a relatively adverse impact on smaller vessels. Given a serious liquidity shortage in the market, only larger vessels can produce positive profits. This result shows that the use of technical indicators helps determine trading timing for second-hand vessels, particularly for the capesize vessel, possibly due to the higher price volatility and lower market efficiency in the market.

Keywords: Technical indicators, Second-hand vessels, Moving averages, Filter rules, Bollinger bands, Bias