Effectiveness of investment strategies based on technical indicators
Abstract
There have been many studies done around the world considering the
effectiveness of technical analysis. To name a few, Sahli N. Nefli (1991); Brock,
Lakonishok, and LeBaron (1992); Neely, Christopher, Weller, and Dittmar (1997); and
Salih N. Nefli and Polinaco (1984), etc. provided evidence that technical analysis can
predict price movements or developed models of market in which investors benefit from
conditioning of historical information. In Vietnam, only a few empirical studies about
technical analysis have been implemented. This paper, with a purpose to explore market
inefficiencies, aims to investigating the effectiveness of investment strategies using 3
most popular technical indicators (MA, MACD, and RSI) taking into account market
conditions, with and without trading costs and transaction fees. With this approach, the
study enhances conclusions that could be applicable for both market efficient conditions
and market inefficient conditions, which is suitable for a young and dynamic market like
Vietnam.
In order to test the performance of the technical analysis in different market
condition, the data in this study will be taken from Ho Chi Minh stock exchange market
for the investment period from 01/01/2009 to 01/01/2012. During this time, investors had
experienced 3 different market conditions which are up-trend, down-trend and sideways.
The collected data included 140 stocks. Funds and preferred stocks were excluded and
some needed assumptions about data and liquidity were set up before the trading
recoding process take place.