Market Ecologies: The Interaction and Profitability of Technical Trading Strategies

Antony Jackson () and Daniel Ladley ()

No 13/02, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: Technical trading strategies make profits by identifying and exploiting patterns in market prices—patterns generated by the interaction of market participants. This paper examines model markets composed of traders using a range of trading rules, and identifies the ecologies under which different strategies are profitable and persist. We show that the presence of technical traders may be beneficial, in some cases reducing volatility and increasing price efficiency. In particular, contrarian traders who base their decisions on high frequency data have the largest positive effect. It is also found that if technical traders condition their actions using ‘real time’ information, they partially emulate arbitrageurs and make positive profits. If this is not the case, trend following traders may make higher returns.

Keywords: Technical Trading Rules; Artificial Market; Market Ecology (search for similar items in EconPapers)
JEL-codes: C63 G12 (search for similar items in EconPapers)
Date: 2013-01
New Economics Papers: this item is included in nep-mst
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