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Trading System based on the use of technical analysis: A computational experiment

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  • da Costa, Thiago Raymon Cruz Cacique
  • Nazário, Rodolfo Toríbio
  • Bergo, Gabriel Soares Zica
  • Sobreiro, Vinicius Amorim
  • Kimura, Herbert

Abstract

Previous studies highlight the influence of methods of technical analysis in the search for exceptional gains in the context of the financial market. Based on this scenario, the main objective of this paper is to analyze the performance of the Simple Moving Average, Exponential Moving Average, MACD and Triple Screen techniques in an actual trading system that included 198 stocks traded in the Brazilian. This paper studies the power of predictability of such methods using various combinations of periods, brokerage fees and a policy of Stop-Loss and compares these with the buy-and-hold strategy. The results indicate that while the studied techniques lead to a high probability of obtaining a return that exceeds the investment value, they have little power of predictability in the Brazilian market. In relation to the passive buy strategy, only the smallest part of the obtained returns outweighs the results of the buy-and-hold strategy.

Suggested Citation

  • da Costa, Thiago Raymon Cruz Cacique & Nazário, Rodolfo Toríbio & Bergo, Gabriel Soares Zica & Sobreiro, Vinicius Amorim & Kimura, Herbert, 2015. "Trading System based on the use of technical analysis: A computational experiment," Journal of Behavioral and Experimental Finance, Elsevier, vol. 6(C), pages 42-55.
    • Handle: RePEc:eee:beexfi:v:6:y:2015:i:c:p:42-55
    DOI: 10.1016/j.jbef.2015.03.003
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    Cited by:

    1. Kumar, Satish & Rao, Sandeep & Goyal, Kirti & Goyal, Nisha, 2022. "Journal of Behavioral and Experimental Finance: A bibliometric overview," Journal of Behavioral and Experimental Finance, Elsevier, vol. 34(C).
    2. Andrea Kolkova, 2017. "Testing EMA Indicator for the Currency Pair EUR / USD," International Journal of Entrepreneurial Knowledge, Center for International Scientific Research of VSO and VSPP, vol. 5(1), pages 35-40, June.
    3. Farias Nazário, Rodolfo Toríbio & e Silva, Jéssica Lima & Sobreiro, Vinicius Amorim & Kimura, Herbert, 2017. "A literature review of technical analysis on stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 115-126.
    4. Matheus José Silva de Souza & Danilo Guimarães Franco Ramos & Marina Garcia Pena & Vinicius Amorim Sobreiro & Herbert Kimura, 2018. "Examination of the profitability of technical analysis based on moving average strategies in BRICS," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-18, December.
    5. C. Veeramani & R. Venugopal & S. Muruganandan, 2023. "An Exploration of the Fuzzy Inference System for the Daily Trading Decision and Its Performance Analysis Based on Fuzzy MCDM Methods," Computational Economics, Springer;Society for Computational Economics, vol. 62(3), pages 1313-1340, October.
    6. Konstandinos Chourmouziadis & Dimitra K. Chourmouziadou & Prodromos D. Chatzoglou, 2021. "Embedding Four Medium-Term Technical Indicators to an Intelligent Stock Trading Fuzzy System for Predicting: A Portfolio Management Approach," Computational Economics, Springer;Society for Computational Economics, vol. 57(4), pages 1183-1216, April.

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