Blog Archives

Trend recall: A novel approach to trend following

The following example of a breakthrough in pattern-recognition technology is reprinted from my book The Alpha Interface: Empirical Research on the Financial Markets, Book Two. It exemplifies the level of creativity and power available to the new generation of personal

Posted in Book Two: Twenty-Four Trading Strategies Based on Scientific Findings About Technical Analysis Tagged with: , , , , , , , , , , , , , , , , , , , ,

The future of forecasting in financial markets

My article on “The Future of Financial Market Forecasting” is to be published in the forthcoming issue of Foresight: The International Journal of Applied Forecasting. This journal is something of a link between the academic and business communities. There is also an

Posted in Book Two: Twenty-Four Trading Strategies Based on Scientific Findings About Technical Analysis, Bubbles and Crashes, scientific understanding of financial markets Tagged with: , , , , , , , , , , , , , , , , , , , ,

The correlation between volume and price direction, part 3

The opposite was true for low-volume stocks. When past week returns were negative, a drop in volume led to a continuation of negative returns. When the past week’s returns were positive, a drop in volume led to a reversal in

Posted in Book Two: Twenty-Four Trading Strategies Based on Scientific Findings About Technical Analysis Tagged with: , , , , , , , , , , , , , , , , , , , , , , ,

The correlation between volume and price direction, part 2

However, the primary result (as presented in the previous blog post, Part 1) did not hold in the price-winner, high-volume and price-winner, low-volume portfolios. Overall, high volume led to continuation in weekly returns while low volume led to reversal in

Posted in Book Two: Twenty-Four Trading Strategies Based on Scientific Findings About Technical Analysis Tagged with: , , , , , , , , , , , , , , , , , , , , , , , , , ,

The correlation between volume and price direction, part 1

Alsubaie and Najand (2009), from the Department of Public Administration, Saudi Arabia, and Old Dominion University, Norfolk, Virginia, examined the relationship between abnormal changes in trading volume and short-term price behavior in the Saudi stock market. Considering prior research and

Posted in Book Two: Twenty-Four Trading Strategies Based on Scientific Findings About Technical Analysis Tagged with: , , , , , , , , , , , , , , , , , , , , , , , , , ,

Enhancing reversal strategies with artificial intelligence

Li, Hoi, Zhao, and Gopalkrishnan (2012), from Nanyang Technological University, Singapore, and the Deloitte Analytics Institute (Asia), Singapore, developed a very sophisticated algorithm for portfolio selection that they labelled the “Confidence Weighted Mean Reversion” (CWMR) strategy. The principle of mean

Posted in Book Two: Twenty-Four Trading Strategies Based on Scientific Findings About Technical Analysis Tagged with: , , , , , , , , , , , , , , , , , , , , , , , , , ,

Do reversal strategies work?

De Groot, Huij, and Zhou (2012), of Robeco Quantitative Strategies and Erasmus University, Rotterdam, The Netherlands, measured the profitability of reversal (or mean reversion) strategies applied to various market cap segments of the U.S. stock market. They examined stocks from

Posted in Book Two: Twenty-Four Trading Strategies Based on Scientific Findings About Technical Analysis Tagged with: , , , , , , , , , , , , , , , , , , , , , , , ,

Do momentum strategies work for weekly stock returns?

Gutierrez and Kelley (2008), from the University of Oregon and the University of Arizona, hypothesized that weekly stock returns would show a momentum effect. They were aware of research from the 1990s that found a short-term reversal effect. In those

Posted in Book Two: Twenty-Four Trading Strategies Based on Scientific Findings About Technical Analysis Tagged with: , , , , , , , , , , , , , , , , , , , , , , , , , ,

Does one price jump lead to another in the same direction?

Friesen, Weller, and Dunham (2009), from the University of Nebraska, the University of Iowa, and Creighton University, Omaha, Nebraska, theorized that confirmation bias (i.e., the human tendency to give added weight to information that confirms one’s own beliefs) was the

Posted in Book Two: Twenty-Four Trading Strategies Based on Scientific Findings About Technical Analysis Tagged with: , , , , , , , , , , , , , , , , , , , , , , ,

Are exponential moving averages superior to simple moving averages?

Camillo Lento (2010), of Lakehead University, Thunder Bay, Ontario, Canada, examined dual moving average crossover systems, comparing simple with exponential moving averages. The analysis was conducted on the exchange traded funds for the S&P 500 (SPY), NASDAQ (QQQ), and Dow

Posted in Book Two: Twenty-Four Trading Strategies Based on Scientific Findings About Technical Analysis Tagged with: , , , , , , , , , , , , , , , , , , , , , , , , ,

Book Three: Trading With The News

Learn about a news-based trading system that yielded a back-tested, average annualized, compounded return from 2000 to 2011 of 58.6%.

“Only once you’ve done your homework will you be able to understand how the stock market works and learn to distinguish between news and noise.” Maria Bartiromo, Use The News

Book Two: Technical Analysis

Learn about the "trend recalling" algorithm that yielded researchers a simulated annual return of greater than 400% in multiple tests.

“The scientific method is the only rational way to extract useful knowledge from market data and the only rational approach for determining which technical analysis methods have predictive power.”
David Aronson, Evidence Based Technical Analysis

Book One: Analysts’ Forecasts

Learn the strategy, based on analysts' revised forecasts, that yielded researchers an average of 1.13% - 2.19% profit per trade, for trades lasting one to two days?

Learn how certain analysts' recommendations, following brokerage hosted investment conferences, yielded profits of over 3% during a two-day holding period?

Learn how researchers found an average profitability of 1.78% for two-hour trades following an earnings announcement?

"This set of tools can help both ordinary and professional investors alike to re-think and re-vitalize their stock picking, timing and methods. A young, aspiring Warren Buffet could put this book to good use."
James P. Driscoll, PhD, investor

Statistically Sound Machine Learning for Algorithmic Trading of Financial Instruments by David Aronson (software included)

Evidence-Based Technical Analysis by David Aronson

Archive of Earlier Posts