A Study On The Effectiveness Of Technical Analysis

In the stock market, people are always keen to analyze and study stocks, with the purpose to harvest the excess returns. In investment practice, as for simple and easy to use, technical analysis methods are popular among investors. However, in the academic aspect, technical analysis methods had been questioned for the reason that it’s the lack of theorical support.Under the efficient market theory, technical analysis would be invalid even at a weak effectiveness market. After that, the studies on technical analysis were at a standstill for a long while. In the recent years, more and more scholar had found that trading strategies based on technical analysis can reap excess return in different markets, and the the effectiveness of technical analysis again called for scholars and investors’ attention. Academic research focuses on MA, but rarely on KDJ,MACD or other technocial indicators. And this aspect is still blank.This article first built up trading strategies based on MA, KDJ and MAC D, then used the historical data from C hinese stock market, ran a n emprical test and determine its effectiveness. Instead of tranditional t-test, bootstrap method was used in the test. In addition, break- even cost was used to solve the transaction costs problem, and return would be lag for one day to offset the effect of the asynchronous trading. Empirical results show that the short-term MA trading strategies and KDJ trading strategies can achieve significant excess returns,and so do the mixed trading strategies. Mixed trading strategies based on MAC D and KDJ or MA is effective even though Selling rule of MACD trading strategies is not effective. But, using more technical indicators do not mean more effective.Judging from the Sharpe ratio, the mixed trading strategies is better than trading strategies base on single indicator.