Pattern recognition applied to chart analysis. Evidence from intraday international stock markets

Autores UPV
Año
CONGRESO Pattern recognition applied to chart analysis. Evidence from intraday international stock markets

Abstract

Technical analysis as sophisticated form of forecasting technique joins different popularity in the academic and business world. In the past technical trading rules and their performance were seen skeptical. This is substantiated by the acceptance of the efficient market hypothesis and mixed empirical findings about technical analysis in widely cited studies. The flag pattern is seen as one of the most significant spread chart patterns among the stock market charting analysts. The present research validates a trading rule based on the further development of flag pattern recognition. The research question concentrates on whether technical analysis applying the flag pattern can outperform an index focusing international stock markets. The markets observed are represented by the corresponding indices DAX (Germany), S&P and DJIA (United States) and IBEX (Spain). The design of the trading rule presents several changes with respect to previous academic works: The wide sample used when considering intra-day data together with the configuration of some of the variables and the consideration of risk allows concluding that the trading rule provides greater positive risk-adjusted returns than the buy and holding strategy which is used as benchmark. The reported positive results strengthen the robustness of the conclusions reached by other researchers.