Reexamining the Profitability of Technical Analysis with Data Snooping Checks

Download or read book Reexamining the Profitability of Technical Analysis with Data Snooping Checks written by Po-Hsuan Hsu and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this article we reexamine the profitability of technical analysis using White`s reality check and Hansen`s SPA test that correct the data snooping bias. Compared to previous studies, we study a more complete quot;universequot; of trading techniques, including not only simple rules but also complex trading strategies, and we test the profitability of these rules and strategies with four main indices. It is found that significantly profitable simple rules and complex trading strategies do exist in the data from relatively quot;youngquot; markets (NASDAQ Composite and Russell 2000) but not in the data from relatively quot;maturequot; markets [Dow Jones Industrial Average (DJIA) and Samp;P 500]. Moreover, after taking transaction costs into account, we find that the best rules for NASDAQ Composite and Russell 2000 outperform the buy-and-hold strategy in most in- and out-of-sample periods. It is also found that complex trading strategies are able to improve on the profits of simple rules and may even generate significant profits from unprofitable simple rules.