Statistical Testing of DeMark Technical Indicators on Commodity Futures

Marco Lissandrin, Donnacha Daly and Didier Sornette
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Marco Lissandrin: ETH Zurich
Donnacha Daly: ETH Zurich
Didier Sornette: ETH Zurich and Swiss Finance Institute

No 15-56, Swiss Finance Institute Research Paper Series from 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.

Keywords: Technical Analysis; Back-Testing; Permutation Test; Financial Markets; Commodity Futures; Contract Roll-Over (search for similar items in EconPapers)
JEL-codes: C12 G14 G17 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2015-11
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1556

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