Volume Information and the Profitability of Technical Trading

Abstract

Past studies have employed market indices to gauge the usefulness of technical trading, disclosing an enigma concerning the technical trading of individual stocks. We, for the first time, applied technical trading rules to each and every stock listed in an emerging equity market. We controlled the vast data set by share turnover that signifies trading volume information. Blending price and volume information, we observed that variable-length moving averages (VMAs) generally outperform the buy-and-hold strategy. VMAs, however, beat the equity market index only for less liquid stocks. Notably, the profitability of VMAs decreases with share turnover, indicating a possible liquidity effect on the profitability of technical trading.

Does frequency matter for intraday technical trading?

“…More recently, Neely and Weller (2013) argue that trading rule returns in foreign exchange markets remain significant but shifted towards emerging markets. Also Chang et al (2014) find evidence for the profitability of moving average trading rules for emerging stock markets. Another argument highlights that the practice could have had merit in any market but that its profitability decreased over time ( Olson, 2004;Qi and Wu, 20 06;Schulmeister, 20 09 ) driven by a continuous increase in market efficiency or to environmental changes suggested by the adaptive market hypothesis ( Lo, 2004 ).…”

Profitability of The Moving Averages Technical Trading Rules in an Emerging Stock Market-A Study of Individual Stocks Listed On Pakistan Stock Exchange

“…The currency investment in creating economies offer up to 20 percent yearly return inside seeing 5 percent yearly price and exchanging rules are consistent after some time (Chong et al, 2009). Some past researches found the more return for technical exchange rules over purchase and hold method for 25 monetary forms out of 39 inside seeing transaction cost, and they finish up the inefficiency of the market like the reason behind the achievement of technical trading rules in predicting the market (Fernández-Pérez et al, 2012;Chang et al, 2014). Tajaddini and Crack (2012) pointed out that profitability of long and short momentum system to be 1 and 3 percent separately resulting to considering the genuine trading price; they moreover demonstrate the abatement in profit for latest 5 years in the sample time span.…”

“…Current paper results are comparative with Chang et al (2014) examination of individual stocks in newly established markets; they found an exchange off amongst liquidity and productivity of variable moving average stock returns. We stated an informative association amongst instability and stock returns.…”

“…The previous studies of technical analysis present a great degree all around an examination on a stock list and portfolio gainfulness of specialized trading principles for individual stocks. The previous study inspected the advantage of the essential technical exchange guideline of variable moving average using single stock information from the Taiwan Stock Exchange (Chang et al, 2014). However, this investigation used trading volume as a mediator for stock liquidity and watched that variable moving average do enhance the circumstance than purchase and hold system.…”