Abstract
Technical trading strategies make profits by identifying and exploiting patterns in market prices—patterns generated by the interaction of market participants. Using a model market populated by individuals using a range of trading rules we show that the presence of technical traders may be beneficial, in some cases reducing volatility and increasing price efficiency. In particular, contrarian traders who base their decisions on high frequency data have the largest positive effect. It is also found that if technical traders condition their actions using ‘real time’ information, they partially emulate arbitrageurs and make positive profits.
| Original language | English |
|---|---|
| Pages (from-to) | 270–280 |
| Number of pages | 11 |
| Journal | International Review of Financial Analysis |
| Volume | 47 |
| Early online date | 17 Feb 2016 |
| DOIs | |
| Publication status | Published - Oct 2016 |
Keywords
- Technical trading rules
- artificial market
- market ecology