Testing Technical Trading Rules: Evidence from SAARC Countries

Faisal Anees (), Shujahat Haider Hashmi () and Muhammad Asad ()
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Faisal Anees: Government College University, Faisalabad, Pakistan
Shujahat Haider Hashmi: Piraeus University of Applied Sciences
Muhammad Asad: Lecturer, Mirpur University of Science and Technology Mirpur AJK -Pakistan

New Challenges in Accounting and Finance, 2018, vol. 1, 1-36

Abstract: Technical analysis is widely accepted tool in professional place which is frequently used for investment decisions. Technical analysis beliefs that there exist patterns and trends and by capturing trends and patterns one can bless with above average profits. We test two technical strategies: Moving averages and Trading Range to question, either these techniques can yield profitable returns with the help of historical data. Representative daily indices of Four countries namely Pakistan, India, Srilanka, Bangladesh ranging from 1997 to 2011 have been examined. In case of Moving Average Rule, both simple and exponential averages have been examined to test eleven different short term and long term rules with and without band condition. Our results delivered that buy signals generate consistent above average returns for the all sub periods and sell signals generate lower returns than the normal returns. Intriguing observation is that Exponential average generates higher returns than the Simple Average. The results of Trading Range Break strategy are parallel with Moving average Method. However, Trading Range Strategy found not to give higher average higher return when compared with Moving Averages Rules and degree of volatility in returns is higher when compared with moving Average rule. In attempt to conclude, there exist patterns and trends that yield above average and below average returns which justify the validity of technical analysis.

Keywords: Technical Analysis Strategies; Moving Average; Resistance and Support Level; Ranging Trade Break; Efficiency of Markets (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:bco:ncafaa::v:1:y:2018:p:1-36

DOI: 10.32038/NCAF.2018.01.01

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