What drives trend-following profits in stocks? The role of the trading signals’ volatility

Zoicas-Ienciu, Adrian; Pochea, Maria Miruna

doi:10.1080/00036846.2022.2118222

Cited by 1 publication

(1 citation statement)

References 37 publications

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“…Regarding H2 of "utilize contrarian strategies as contrarian trading signals emitted in specific months, as opposed to other months, would achieve much better subsequent performance", we disclose that in addition to purchasing and holding constituent stocks of these two stock indices (DJI 30 and NDX 100 indices) for over 100 trading day would derive positive profits no matter the trading signals emitted in any months, investors would exploit much higher profit for holding 250 trading days (approximately one year) as trading signals emitted in some months (e.g., March and December) rather than other months, and especially impressive performance is shown for trading signals emitted by contrarian trading rules (i.e., SOI and RSI trading rules) in March, thereby accepting H2. As such, we argue that our findings may indicate that the trading timing would matter for enhancing profitability in the stock markets [32,97]. However, we would point out that the trading timing emitted in this study would be different from that trading performance that would be better in January [2,3].…”

Section: Discussionmentioning

confidence: 55%

Mastery of “Monthly Effects”: Big Data Insights into Contrarian Strategies for DJI 30 and NDX 100 Stocks over a Two-Decade Period

Chiu,

Huang,

Day

et al. 2024

Mathematics

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In contrast to finding better monthly performance shown in a specific month, such as the January effect (i.e., better stock price performance in January as opposed to other months), which has been extensively studied, the goal of this study is to determine whether investors would obtain better subsequent performance as technical trading signals emitted in a specific month because, from the investment perspective, investors purchasing stocks now would not know their performance until later. We contend that our analysis emphasizes its critical role in steering investment decisions and enhancing profitability; nonetheless, this issue appears to be overlooked in the relevant literature. As such, utilizing big data to analyze the constituent stocks of the DJI 30 and NDX 100 indices from 2003 to 2022 (i.e., two-decade data), this study investigates whether trading these stocks as trading signals emitted via contrarian regulation of stochastic oscillator indicators (SOIs) and the relative strength index (RSI) in specific months would result in superior subsequent performance (hereafter referred to as “monthly effects”). This study discovers that the oversold signals generated by these two contrarian regulations in March were associated with higher subsequent performance for holding 100 to 250 trading days (roughly one year) than other months. These findings highlight the importance of the trading time and the superiority of the RSI over SOIs in generating profits. This study sheds light on the significance of oversold trading signals and suggests that the “monthly effect” is crucial for achieving higher returns.

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