Advantages of Using Technical Analysis to Predict Future Prices on the Amman Stock Exchange

Abstract

Many studies have examined the benefits of conducting technical analysis on the stock market, with mixed results. With a view to clarifying the usefulness of technical analysis, this paper examines the capacity of technical analysis rules to predict future prices on the Amman Stock Exchange. As data for this research, a sample of closing prices for the general index on the Amman Stock Exchange was used. Our results show that technical analysis does have the power to predict the movement of the stock price, and to generate profitable buy and sell signals.

Is Technical Analysis Profitable and Capable for Stock Price Prediction? Evidence From Malaysian Stock Market

“…However, Muhannad A. Atmeh and Ian M. Dobbs (2006) also suggested that the trading rules are not only useful for predicting market movements, as they can also be used to figure out the "profit improving" trading strategies. On a similar note, a later study by Abbad et al (2014) showed that technical analysis has the predictive power on the stock price movement over the more recent period.…”

“…Generally, the moving average rules have higher predictive power in emerging market than the developed market. In the Jordanian stock market, Muhannad A. Atmeh and Ian M. Dobbs (2006) and Abbad, Fardousi and Abbad (2014) analyzed the performance of moving average rules on the daily general index of Amman Stock Market, covering the period from 1992 to 2001 and 2000 to 2007, respectively. Even though most of the moving average rules were found to be not working, some shorter term rules [notably the (1, 5) moving average rules] still generated excess return in the presence of transaction costs.…”

Application of Cloud Model in Qualitative Forecasting for Stock Market Trends

“…Stock markets are affected by many highly interrelated uncertain factors that include economic, political, psychological, and company-specific variables. These uncertain factors are undesirable for the stock investor and make stock price prediction very difficult, but at the same time, they are also unavoidable whenever stock trading is preferred as an investment tool [ 1 , 2 ]. To invest in stocks and achieve high profits with low risks, investors have used technical and fundamental analysis as two major approaches in decision-making in financial markets [ 2 ].…”

“…It analyzes the intrinsic value of the firm to identify whether the stock is underpriced or overpriced. On the other hand, technical analysis uses past charts, patterns, and trends to forecast the price movements of the entity in the coming time [ 2 , 3 ]. The main weakness of fundamental analysis is that it is time-consuming as people cannot quickly locate and absorb the information needed to make thoughtful stock picks.…”

“…Qualitative forecasts enable a manager to decrease some of this uncertainty to develop plans that are fairly accurate, but still inexact. However, the lack of precision in the development of a qualitative forecast versus a quantitative forecast ensures that no single qualitative technique produces an accurate forecast every time [ 2 , 4 , 7 , 8 , 9 , 10 ].…”