What Do We Know About the Profitability of Technical Analysis?
Read the paperopens doi.org in a new tab
What they found
A survey of 95 academic studies of technical trading rules across stocks, futures, and currencies. Of the modern studies (post-1988), 56 found positive results, 20 negative, and 19 mixed, with evidence strongest in currency and futures markets and weakest in stock indices after the 1990s. The authors point out that most positive studies suffer from data snooping, ignoring costs, or not testing out of sample, and that profits appear to have declined over time as markets became more efficient.
What you can use
- The honest summary of the literature is 'mixed': technical rules have shown profits in some markets and periods, most often in futures and FX, and rarely in liquid stock indices recently.
- Studies that fix the obvious problems (costs, data snooping, out-of-sample) find much smaller profits.
- If a technical rule worked in the 1970s and 1980s, that does not mean it works today.
Caveats
A survey, so its conclusions depend on the quality of the underlying studies. Coverage ends around 2004.
Tags: technical-analysis, survey, futures, forex
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.