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Statistical Testing of DeMark Technical Indicators on Commodity Futures

Author

Listed:
  • Marco LISSANDRIN

    (ETH Zurich)

  • Donnacha DALY

    (ETH Zurich)

  • Didier SORNETTE

    (ETH Zurich and Swiss Finance Institute)

Abstract

We examine the performance of three DeMark indicators (Sequential, Combo and Setup Trend), which constitute specific implementations of Technical Analysis often used by practitioners, over 21 commodity futures markets and 10 years of data. Our backtests characterise the predictive power of these indicators. Market entry signals are tested by comparing conditional returns (i.e. conditioned on the entry signals) to unconditional returns. For the analysis of trades, which also comprise market-exit signals, randomization tests have been performed for benchmarking. We generate the distributions of three performance metrics (mean return, profit factor and risk-return ratio) over different trade holding horizons and compare them with their randomized versions. We have further checked the impact of the rolling strategy of future contracts on the performance of the DeMark indicators. For the period from Jan. 2004 to Jan. 2014, our results suggest statistically significant predictive power on a wide range of commodity futures.

Suggested Citation

  • Marco LISSANDRIN & Donnacha DALY & Didier SORNETTE, 2015. "Statistical Testing of DeMark Technical Indicators on Commodity Futures," Swiss Finance Institute Research Paper Series 15-56, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1556
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    File URL: http://ssrn.com/abstract=2696155
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    More about this item

    Keywords

    Technical Analysis; Back-Testing; Permutation Test; Financial Markets; Commodity Futures; Contract Roll-Over;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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