Performance of technical trading rules: evidence from the crude oil market

Psaradellis, I., Laws, J., Pantelous, A. A. and Sermpinis, G. (2019) Performance of technical trading rules: evidence from the crude oil market. European Journal of Finance, 25(17), pp. 1793-1815. (doi: 10.1080/1351847X.2018.1552172)

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This study investigates the debatable success of technical trading rules, through the years, on the trending energy market of crude oil. In particular, the large universe of 7846 trading rules proposed by Sullivan, Timmermann, and White (1999. “Data-Snooping, Technical Trading Rule Performance, and the Bootstrap.” The Journal of Finance 54 (5): 1647–1691. doi:10.1111/0022-1082.00163), divided into five families (filter rules, moving averages, support and resistance rules, channel breakouts, and on-balance volume averages), is applied to the daily prices of West Texas Intermediate (WTI) light, sweet crude oil futures as well as the United States Oil (USO) fund, from 2006 onwards. We employ the k-familywise error rate (k-FWER) and false discovery rate (FDR) techniques proposed by Romano, J. P., and M. Wolf. (2007. “Control of Generalized Error Rates in Multiple Testing.” The Annals of Statistics 35 (4): 1378–1408. doi:10.1214/009053606000001622) and Bajgrowicz, P., and O. Scaillet. (2012. “Technical Trading Revisited: False Discoveries, Persistence Tests, and Transaction Costs.” Journal of Financial Economics 106 (3): 473–491. doi:10.1016/j.jfineco.2012.06.001) respectively, accounting for data snooping in order to identify significantly profitable trading strategies. Our findings explain that there is no persistent nature in rules performance, contrary to the in-sample outstanding results, although tiny profits can be achieved in some periods. Overall, our results seem to be in favor of interim market inefficiencies.

Item Type:Articles
Additional Information:Funding: The authors would like to acknowledge the gracious support for this work provided by the EPSRC and ESRC Centre for Doctoral Training in Quantification and Management of Risk and Uncertainty in Complex Systems and Environments [grant number EP/L015927/1].
Glasgow Author(s) Enlighten ID:Laws, Mr Jason and Psaradellis, Mr Ioannis and Sermpinis, Professor Georgios
Authors: Psaradellis, I., Laws, J., Pantelous, A. A., and Sermpinis, G.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:European Journal of Finance
Publisher:Taylor and Francis
ISSN (Online):1466-4364
Published Online:27 November 2018
Copyright Holders:Copyright © 2018 Informa UK Limited, trading as Taylor and Francis Group
First Published:First published in European Journal of Finance 25(17):1793-1815
Publisher Policy:Reproduced in accordance with the publisher copyright policy

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