Performance of Technical Analysis in Declining Global Markets

The main objective of this research is to discuss the impact of declining global markets on technical analysis performance using international data. McKenzie (2007) shows that technical analysis performs well during the 1998 financial crisis. Technical analysis produces better performance in stock markets with high volatility and a downward trend than in stable and uptrend markets (Ahmed et al., 2000). This study uses OSIRIS and Yahoo Finance databases. The focus is in the year 2011 because global stock markets substantially decline in that year. The year 2010 was a non-decreasing year, and data for that year are used as a control sample. This study examines 21 countries around the world. The total numbers of technical analysis signals identified are 11,040. For robustness tests, this study employs some technical analysis methods. These are SMA5 (5 days Simple Moving Average), SMA10, SMA15, WMA5 (5 days Weighted Moving Average), WMA10, and WMA15. In addition, short and long strategies and the combination of both are used. The findings strongly suggest that technical analysis produces higher returns than buy and hold strategies in declining global markets