Technical Trading Rules

Most banks and the recently upcoming hedge fund industry rely to a differentextent on technical trading rules and technical analysis. The fact that thesetechnical trading rules yield superior returns in practice raises severalquestions that will be examined in this book. First one of the most crucialquestions is in which assets technical trading rules perform extraordinarilywell. This analysis is based on a risk-return approach with an assessment ofthe negative standard deviation of each asset as a risk indicator. Second thestatistical significance of technical trading is examined by using a simulationmethod known as bootstrap. Third null models are simulated to answer thequestion to what extent autoregressive models and GARCH models are ableto capture the dependencies in the future time series. Finally a rule optimizeralgorithm is developed to assess if any rule parameters yield superior returnsover a wide range of assets.