Influence of range to standard deviation ratio on results of a trading rule

Abstract

This paper examines relationship between Range to Standard deviation ratio (R/S ratio) and the profitability of a trading rule using stock prices of Indian market. The R/S ratios are expected to detect long-term dependencies in a time series. If dependencies are found, the dependency can be used to develop strategies for profitable trades. The larger the R/S ratio, the stronger is the trend and higher is the chance of technical trading rule giving profitable results. It was found that during the periods of high R/S ratios, a trend following trading rule could predict price movement of the series more accurately.