Profitability of Technical Analysis Rules in Emerging and Developed Markets: Review

Abstract

This study aims at reviewing the theoretical foundations and literature reviews for technical analysis approach, to examine the ability of this approach to predict the future stock value in both the emerging and developed financial markets. On reviewing several studies in emerging markets and as a result of financial inefficiency, the simplest technical trading rules are able to predict the future stock value. In contrast, the application of these same simple rules (models) for technical analysis results in inaccurate predictions in developed financial markets, however, with the use of some complex models, such as neural network, genetic algorithm, genetic programming, and chartist analysis system for trading (CAST), and technical analysis applied models, the result is so clear in the predictability of the future stock value using the technical analysis approach in developed financial markets. So it can be concluded that the technical analysis is profitable in both emerging and developed financial markets. The study recommended that research and study try to reach the best and most accurate technical analysis models that can be applied in both emerging and developed financial markets, which can then be generalized.