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Technical Trading Systems and Stock Price Dynamics

Author

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  • Stephan Schulmeister

Abstract

The study analyses the performance and price effects of 2,580 technical trading systems in the US and German stock markets. Technical stock trading is highly profitable when based on 30-minutes data in the stock index futures markets. However, when trading is based on daily data the profitability of technical models declines significantly. When based on 30-minutes data technical stock trading is extremely profitable in sample as well as out of sample. The profitability of technical stock trading is exclusively due to the exploitation of persistent stock price runs. This is reflected by the fact that profitable positions last on average roughly three times longer than unprofitable positions. A strong feed-back mechanism is operating between stock price movements and the transactions triggered off by technical models. Rising stock prices, e.g., cause increasingly more technical models to produce buy signals, which in turn strengthen and lengthen the upward price movement.

Suggested Citation

  • Stephan Schulmeister, 2002. "Technical Trading Systems and Stock Price Dynamics," WIFO Studies, WIFO, number 23373.
    • Handle: RePEc:wfo:wstudy:23373
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    File URL: https://www.wifo.ac.at/wwa/pubid/23373
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    Citations

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    Cited by:

    1. Stephan Schulmeister, 2015. "The struggle over the Financial Transactions Tax. A politico-economic farce," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 15-55.
    2. Stephan Schulmeister, 2009. "Profitability of technical stock trading: Has it moved from daily to intraday data?," Review of Financial Economics, John Wiley & Sons, vol. 18(4), pages 190-201, October.
    3. Stephan Schulmeister, 2008. "Components of the profitability of technical currency trading," Applied Financial Economics, Taylor & Francis Journals, vol. 18(11), pages 917-930.

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