Technical Indicators as Predictors of Position Outcome for Technical trading

The objective of technical trading is to identify profitable conditions for the entry and exit of market positions. This paper explores the potential use of three common momentum indicators to classify the outcome (return) of a position defined by trading signals of a Simple Moving Average system. The collection of positions associated with each randomly selected security was grouped into outcome classifications. The outcome classifications and selected securities were formed into an Analysis of Variance experiment. If the observed values of a momentum technical indicator vary with position outcome, then it could be suggested the indicator has at least a minimal level of predictive power that could be used for estimating the return of future positions defined by a Simple Moving Average trading system. The mean observed values of the A/D Oscillator and the William’s %R indicators varied with position outcome although no definitive conclusions were drawn as the assumptions for the Analysis of Variance experiment were challenged. The mean observed value of the Relative Strength Index indictor did not vary with position outcome.