Drawing technical figures in double auction artificial stock markets

Abstract

This paper presents an artificial stock market that is able to reproduce both technical figures, such as the price bouncing between support and resistance lines, and some typical stylized facts of financial time series. The proposed market implements a continuous double auction system where agents can either follow a fundamental or a chartist investment approach. Some novelties are introduced to this setting. Firstly, the fundamental strategy is based on a time-varying fundamental value, which does not exhibit the stylized facts of financial time series. The fundamental strategy tries to make the price follow this fundamental value. Secondly, chartist agents can adopt either a trend-following or a bouncing strategy. Interestingly, chartist strategies are implemented taking into account the support and resistance lines that each agent draws. As a result of both investment approaches, some typical technical figures can be spotted on the time series of the prices. © 2011 Springer-Verlag Berlin Heidelberg.