The Profitability Of Technical Trading Rules: A Combined Signal Approach

Abstract

<p class="MsoNormal" style="text-align: justify; margin: 0in 34.2pt 0pt 0.5in; mso-layout-grid-align: none;"><span style="font-family: Times New Roman;"><span style="font-size: 10pt; mso-bidi-font-style: italic;" lang="EN-CA">The focus of this paper is to determine the profitability of technical trading rules by evaluating their ability to outperform the naïve buy-and-hold trading strategy. Moving average cross-over rules, filter rules, Bollinger Bands, and trading range break-out rules are tested on the </span><span style="font-size: 10pt;" lang="EN-CA">S&P/TSX 300 Index, the Dow Jones Industrial Average Index, NASDAQ Composite Index, and the Canada/U.S. spot exchange rate<span style="mso-bidi-font-style: italic;">. After accounting for transaction costs, excess returns are generated by the moving average cross-over rules and trading range break-out rules for the </span>S&P/TSX 300 Index<span style="mso-bidi-font-style: italic;">, </span>NASDAQ Composite Index and the Canada/U.S. spot exchange rate<span style="mso-bidi-font-style: italic;">. Filter rules also earn excess returns when applied on the Canada/U.S. spot exchange rate. The bootstrap methodology is used to determine the statistical significance of the results. The profitability of the technical trading rules is further enhanced with a combined signal approach.</span></span></span></p>