Short-term predictability of equity returns along two style dimensions

Pattern Recognition Applied to Chart Analysis. Evidence From Intraday International Stock Markets

“…Further, Shynkevich states that "technical analysis encompasses a large set of techniques designed to predict future prices using historical data on price and other related observables" (Shynkevich, 2012c). This definition is close to Yamamoto's definition.…”

“…The fact that transaction costs accrue and therefore should be considered within conducted analyses is also a main critical aspect within standard studies. As Shynkevich illustrates, trading rules for portfolios with small to moderate one-way transaction costs (5 to 20 bp) generate statistically significant profits but once a higher level of transaction cost is applied only two portfolios in the sample of Shynkevich's analysis are profitable (Shynkevich, 2012c). The fact that technical analysis' profitability is eroded by transaction costs was already detected by Alexander, and Fama and Blume a long time ago (Alexander, 1964;Fama and Blume, 1966).…”

“…Shynkevich states that "technical analysis explores time-series predictability of returns, which is different from cross-sectional predictability, and it is typically used by financial market participants to predict price movement for short forecasting horizons" (Shynkevich, 2012c). It is noteworthy that Shynkevich points out that technical analysis is applicable for short term horizons and investment returns are the explicit subject of investigation.…”

“…While a variable-length rule describes the situation when "a trader keeps an open position following a buy or sell signal until the opposite trading signal emerges", the fixedlength rule is defined by a situation where "the holding period following a signal has a fixed length and a signal occurring during the holding period is ignored" (Shynkevich, 2012c indicator is above (below) the pre-specified threshold by a fixed percentage. The second filter is in the form of a time delay option: it requires the signal to remain valid for a pre-specified number of days before the respective position is ultimately taken.…”

“…The second filter is in the form of a time delay option: it requires the signal to remain valid for a pre-specified number of days before the respective position is ultimately taken. Only one filter is imposed at a given time and a combination of the fixed-length holding period and a filter permits a neutral position" (Shynkevich, 2012c).…”