advanced trading rules - acar 2002

[...]... using systematic trading rules This book includes three sections: the stochastic properties of trading rules, applications to the foreign exchange market and trading the futures markets We shall next discuss the contributions of each of the ®fteen papers The ®rst section deals with the stochastic properties of trading rules (six chapters) 1 Blake LeBaron uses moving-average based rules as speci®cation... out of varied forecasts (four chapters) 4 Advanced Trading Rules 7 John Okunev and Derek White evaluate the performance of multiple classes of foreign exchange trading rules across eight base currencies Speci®cally, they compare trading rules that focus on individual currencies with those that follow a long±short strategy across multiple currencies The trading rules include pure momentum, buying/selling... Introduction 5 12 Risto Karjalainen uses genetic algorithm to ®nd technical trading rules for S&P 500 futures The rules are found to be pro®table in an out-of-sample test period, with reduced volatility compared to the buy-and-hold strategy It is also shown that there are characteristic patterns in option trading activity coinciding with the trading rule signals The results are consistent with shortterm overreaction... the other two rules, the thirty- and ®fty-week moving-average rules The results for these rules are similar to the ®rst two with the buy means unusually large and the sell means unusually small There still appears to be no e€ect in volatility 6 The ®nal set of tests performs a joint test based on all three rules An average is taken for the statistics generated from each of the three rules For the mean... such as head-and-shoulders or double-bottoms ± they ®nd that over the 31-year sample period, several technical indicators do provide incremental information and may have some practical value 3 Daan Matheussen and Stephen Satchell assess the performance of various trading rules for TAA (tactical asset allocation) modelling across equity indices in the emerging markets The authors ®nd that rules based... moments from the technical trading rules with a bootstrapped random walk generated from the actual returns time series scrambled with replacement Three moving-average rules will be used, the twenty-week, thirty-week and ®ftyweek moving averages These are fairly common lengths used by traders We will see that the results are not very sensitive to the lengths used The movingaverage rules force us to start... to predict the direction of price movements Second, the criterion used to assess forecasting accuracy is 2 Advanced Trading Rules economic signi®cance Trading rules are built out of forecasting strategies and their pro®tability subsequently measured Our primary concern is to specify trading rule-based tools which allow proper testing of the ecient market hypothesis A market is said to be informationally... be simulated on the computer In this sense, the trading rule moves from being a pro®t-making tool to a new kind of speci®cation test The trading rules will also be used as moment conditions in a simulated method of moments framework for estimating linear models Finally, the economic signi®cance of these results will be explored Returns from the trading rules applied to the actual series will be tested... Estimates of these conditional moments are obtained from foreign exchange time series, and 8 Advanced Trading Rules these estimates are then compared with those from simulated stochastic processes Section 1.4 of this chapter di€ers from most trading rule studies which look at actual trading pro®ts from a rule Actual trading pro®ts will be explored in section 1.5 1.3 NULL MODELS FOR FOREIGN EXCHANGE MOVEMENTS... of a trading strategy 9 Kevin Chang and Carol Osler assess the incremental value of the head-andshoulders pattern (H&S), consistently cited by technical analysts as particularly frequent and reliable, relative to ®lter rules On an incremental basis, they show that the H&S trading rules add noise but no value Thus, a trader would do no better, and possibly worse, by following both H&S and ®lter rules . the economic signi®cance of the trading results 2 Advanced Trading Rules is tested. Returns distributions from the trading rules are compared with returns on risk-free assets and returns from the. algorithms 346 12.3 Evolving technical trading rules 349 12.4 Testing the trading rules 352 12.5 Analysing trading rule signals 357 12.6 Conclusions 363 13. Commodity trading advisors and their role. always better? Head-and-shoulders and ®lter rules in foreign exchange markets 264 P. H. Kevin Chang and Carol L. Osler 9.1 Introduction 264 9.2 De®ning ®lter rules and head-and-shoulders patterns