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Testing the CRISMA trading system: evidence from the UK market

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  • Alan Goodacre
  • Jacqueline Bosher
  • Andrew Dove
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    Abstract

    A number of recent studies on technical analysis using individual measures such as filter rules, moving averages and trading range break-out have provided a measure of support for their usefulness. The current study tests the multiple-component CRISMA trading system of Pruitt and White (Journal of Portfolio Management, 14, 1988) in a UK context. The system seeks to identify equity trades (and subsequently, call options written on these shares) by using jointly the three technical filters of relative strength, cumulative volume and the relationship between 50-day and 200- day moving averages. The results over the period January 1987 to June 1996 show that the CRISMA system would have been profitable, generating an annualized profit of 19.3%. However, when adjusted for market movements and risk it was unable to predict significant excess returns. Further, the results were not stable over time and trades on larger companies fared better than small. When the signals were used to trade options, CRISMA was able to predict high returns (mean return of 10.2% per trade even in the presence of maximum retail costs) but with only 55% of trades profitable (proportion not statistically significant). Overall, the results are consistent with weak form efficiency in the UK equity market.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 9 (1999)
    Issue (Month): 5 ()
    Pages: 455-468

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    Handle: RePEc:taf:apfiec:v:9:y:1999:i:5:p:455-468

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    Cited by:
    1. Marshall, Ben R. & Cahan, Jared M. & Cahan, Rochester H., 2006. "Is the CRISMA technical trading system profitable?," Global Finance Journal, Elsevier, vol. 17(2), pages 271-281, December.
    2. Yung-Ho Chang & Massoud Metghalchi & Chia-Chung Chan, 2006. "Technical trading strategies and cross-national information linkage: the case of Taiwan stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 16(10), pages 731-743.
    3. Isakov, Dusan & Marti, Didier, 2011. "Technical Analysis with a Long-Term Perspective: Trading Strategies and Market Timing Ability," FSES Working Papers 421, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.

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