Raleigh-Durham Trading and Investing Stock/Future/Option/FX Message Board Trading Discussions › Study of Effectiveness of Technical Analysis

Study of Effectiveness of Technical Analysis

Don B.
DonBrady
Group Organizer
Cary, NC
Post #: 1,008
According to a 2009 article at
http://www.cbsnews.co...­

A recent study by finance professors at Massey University in New Zealand examined more than 5,000 technical trading rules to see if they added value. The authors found "no evidence that the profits to the technical trading rules we consider are greater than those that might be expected due to random data variation."

The major contributions of this paper are:
The paper looks at more than 5,000 trading rules in 49 developed and emerging markets. Most other studies look at far fewer trading strategies and markets.
The paper uses statistical methods to adjust for data snooping bias.
The paper looks at both developed and emerging markets to determine whether technical trading rules add more value in less developed (or efficient) markets. The authors found that technical analysis may work better in emerging markets than developed markets, but it was "not a strong result."


The study included Filter Rules, Moving Average Rules,Support and Resistance Rules, and Channel Break-outs, and is available at
http://papers.ssrn.co...­

It is being discussed on Elite Trader at
http://www.elitetrade...­

P.S. I do think that is possible to trade profitably but not easily if just using moving average crossovers etc. Then again some of the "Turtles" do appear to have been very successful using long-term moving average approaches.
Prakash G.
user 10093921
Raleigh, NC
Post #: 105
Here is link for performance of a ETF.

http://finance.yahoo....­

Mebane Faber, one of the core person of this etf has presented in our meetup group in past.
His methods are mostly technical for assets allocation. I am not sure if it is used to pick individual stocks too.
From what I understand he uses 200 simple moving average on monthly chart.

May be 2 years is not enough period to evaluate results.

-Prakash.
Dr. Jose' R.
Skeptic
Cary, NC
Post #: 684
Well, so much for using moving average cross-overs!

My recollection is that his presentation was as a quant using moving-average cross-overs, similar to yours that he <<uses 200 (day?) simple moving average on monthly chart.>>

Their website shows that they invest in ETF's, and closed-end-funds. Largest present holding is a Vanguard ETF.

I recall somebody in the audience telling me: "so by using the moving average-cross-over method, he is effectively selling low and buying high" ? In other words, selling when he should have been buying and buying when he should have been selling...?

2 years is enough evidence for me to conclude that... One would have been much better off putting the money into TIP and the SPY or QQQ than in Cambria Global Tactical ETF (GTAA)
Prakash G.
user 10093921
Raleigh, NC
Post #: 106
From the elite trader discussion link, somebody said something like this: (and I agree with it.)

"It is important to know what drives the Price at the present time. Price levels itself are not that important in trading decisions. But understanding and analyzing the events and it's impact on the price is more important."

e.g. Europe events are important at this time.

-Prakash
Dave
user 4198647
Raleigh, NC
Post #: 47

2 years is enough evidence for me to conclude that... One would have been much better off putting the money into TIP and the SPY or QQQ than in Cambria Global Tactical ETF (GTAA)

There was also an article in the Wall Street Journal Recently about Tactical Asset Allocation.

"As usual, investors appear to have stampeded into a trend at an inopportune time. Mutual funds with "tactical" in their name are up 6.9% this year—an average of five percentage points less than the various indexes they follow, according to Morningstar. Over the past three years, these funds have gained an annual average of 4.9%, or more than six points a year behind their benchmarks."

Why am I not surprised that a ton of money has poured into these funds, and the subsequent years saw lackluster performance (for the investors)? The fund managers collecting the fees I'm sure did just fine!
Dr. Jose' R.
Skeptic
Cary, NC
Post #: 701
"As usual, investors appear to have stampeded into a trend at an inopportune time."

Strategies such as this (selling when the price goes below the moving average) are condemned to selling at an inopportune time, because they use lagging indicators (moving averages of any kind, whether simple, exponential or weighted are by their very nature lagging indicators) with directional (momentum or trending) trading rules (thereby ignoring any mean reversion). The market behaves as a combination of trending and mean reversion. One of the worst things one can do is to use a lagging indicator with a rule that ignores the dual nature of the market (for example naively assuming that the market is purely trending or purely mean reverting).
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