Profits from Technical Trading Rules

23 Pages Posted: 4 Mar 1998  

Mark J. Ready

University of Wisconsin - Madison - Department of Finance, Investment and Banking

Multiple version iconThere are 2 versions of this paper

Date Written: February 5, 1998

Abstract

I examine technical trading rules developed by Allen and Karjalainen (1993) and moving average rules studied by Brock, Lakonishok, and LeBaron (1992). Using intraday data, I find that profits reported in these studies may not have been achievable due to price slippage between when trading signals are measured and when trades could actually be executed. I also find that the 0.1% one-way transaction cost assumed by Allen and Karjalainen appears too low. I find that the ability of all of the rules to distinguish between days of high and low returns has declined dramatically over the last six to eight years, suggesting that factors causing return predictability may change over time.

I test modified rules that account for higher transaction costs and potential price slippage and are based on more recent data. These new rules do considerably better, but they still are unable to beat a buy and hold strategy.

JEL Classification: G11, G12

Suggested Citation

Ready, Mark J., Profits from Technical Trading Rules (February 5, 1998). Available at SSRN: https://ssrn.com/abstract=64168 or http://dx.doi.org/10.2139/ssrn.64168

Mark J. Ready (Contact Author)

University of Wisconsin - Madison - Department of Finance, Investment and Banking ( email )

975 University Avenue
Madison, WI 53706
United States
608-262-5226 (Phone)
608-263-0477 (Fax)

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