Template-Type: ReDIF-Article 1.0
Author-Name: Thomas S. Coe
Author-Name: Kittipong Laosethakul
Title:  Should Individual Investors Use Technical Trading Rules to Attempt to Beat the Market?
Abstract:  <b>Problem statement:</b> Despite widespread academic acceptance of the Efficient Markets Hypothesis, some stock traders still use technical trading rules in an attempt to beat the market. <b>Approach:</b> This study looked at four trading rules, namely, the arithmetic moving average, the relative strength index, a stochastic oscillator and its moving average. These trading rules compare the relationship of current prices to past price patterns to generate a signal when to buy and sell stocks. The trading rules were tested over the years 2000-2009, a period of time that exhibited bull and bear markets, to determine if traders could actively trade a stock and beat a passive investment strategy. <b>Results:</b> We tested the four trading rules against the 576 stocks that comprise the S&P 100, the NASDAQ 100 and the S&P Midcap 400. The results proved discouraging to that strategy, in that no one trading rule consistently beat the market. <b>Conclusion/Recommendations:</b> Since technical trading rules cannot be used to consistently beat a long-term buy and hold strategy, we recommend that investors first use fundamental analysis to select stocks and then apply a technical trading rule to enhance potential trading gains.
Keywords: Efficient market hypothesis, moving average, relative strength index, stochastic oscillators
Journal: American Journal of Economics and Business Administration
Pages: 201-209
Volume: 2
Issue: 3
Year: 2010
Month: September
DOI: 10.3844/ajebasp.2010.201.209
File-URL: https://thescipub.com/pdf/ajebasp.2010.201.209.pdf
File-Format: Application/pdf
File-URL: https://thescipub.com/abstract/ajebasp.2010.201.209
File-Format: text/html
Handle: RePEc:abk:jajeba:ajebasp.2010.201.209