Technical Analysis and Mutual Funds. Testing Trading Rules
ABSTRACT: This paper attempts to develop strategies that enable portfolio managers to improve market timing by learning to recognize leading indications of forthcoming changes. The aim of this study is the testing, in a Mutual Fund series, of the predicting ability of a popular technical exchange tool, the Moving Average Rule. A short-term and a long-term moving average are used for the creation of “buy” and “sell” signals of mutual funds. 2891 predictions were made, for the same time-series, for different values of short-term and long-term moving averages and the profitability of this method was calculated. The method was proved profitable, if no buy and sell cost was counted. The Two Moving
Average Rule by itself is efficient only for the companies that administrate the respective mutual fund and not for the single investor. It is presented the triple moving average rule, which possibly can be a solution for this problem.
KEYWORDS: Technical Analysis, Mutual Funds, Moving Average Rule, Decision Making
INTRODUCTION
The decision-making process could break down into two separate stages-analysis and timing. Because of the high leverage factor in the future markets, timing is especially crucial to successful trading. It is quite possible to be correct on the general trend of the market and still lose money. Because margin requirements are so low in future trading, a relatively small price move in the wrong direction can force the trader out of the market with the resulting loss of all or most of that margin. In stock market trading, by contrast, a trader who finds him or herself on the wrong side of the market can simply decide to hold onto the stock, hoping that it will stage a comeback at some point in the future. This is how many traders stop being traders and become investors.
Technical analysts attempt to forecast prices by the study of past prices and a few other related summary statistics about security trading. They believe that shifts in
Average Rule by itself is efficient only for the companies that administrate the respective mutual fund and not for the single investor. It is presented the triple moving average rule, which possibly can be a solution for this problem.
KEYWORDS: Technical Analysis, Mutual Funds, Moving Average Rule, Decision Making
INTRODUCTION
The decision-making process could break down into two separate stages-analysis and timing. Because of the high leverage factor in the future markets, timing is especially crucial to successful trading. It is quite possible to be correct on the general trend of the market and still lose money. Because margin requirements are so low in future trading, a relatively small price move in the wrong direction can force the trader out of the market with the resulting loss of all or most of that margin. In stock market trading, by contrast, a trader who finds him or herself on the wrong side of the market can simply decide to hold onto the stock, hoping that it will stage a comeback at some point in the future. This is how many traders stop being traders and become investors.
Technical analysts attempt to forecast prices by the study of past prices and a few other related summary statistics about security trading. They believe that shifts in