Stock trading system based on formalized technical analysis and ranking technique

Abstract

The contribution of this paper lies in a novel application of formalized technical analysis and ranking technique by development of efficient stock trading system. The proposed system is implemented using two steps: on the first step system analyses historical data from large number of stocks and defines a quality function of each stock to specific technical trade pattern; on the second step system grades all the stocks according to the value of the defined quality function and makes suggestions to include the highest ranked stocks into the traders' portfolio. These stocks are being hold for fixed time interval in traders' portfolio, then sold and replaced with the new stocks that got the highest rank. The proposed trading system was tested using historical data records from the USA stock market (1991-2003). The trading system had given significantly higher returns when compared to the benchmark. © Springer-Verlag Berlin Heidelberg 2006.