Technical analysis and genetic programming: Constructing and testing a commodity portfolio

• Published in: The journal of futures markets Vol. 25; no. 7; pp. 643 - 660
• Main Author: Roberts, Matthew C.
• Format: Journal Article
• Language: English
• Published: Hoboken Wiley Subscription Services, Inc., A Wiley Company 01-07-2005; Wiley Periodicals Inc
• Subjects: Commodity market; Economic forecasts; Financial analysis; Financial economics; Forecasting techniques; Futures; Futures trading; Genetic algorithms; Mathematical programming; Methodology; Portfolio analysis; Securities analysis; Statistical methods
• ISSN: 0270-7314; 1096-9934
• DOI: 10.1002/fut.20161

Although academic research on the usefulness of technical analysis is mixed at best, its use remains widespread in commodity markets. Much prior research into technical analysis suffers from data‐snooping biases. Using genetic programming, ex ante optimal technical trading strategies are identified. Because they are mechanically generated from simple arithmetic operators, they are free of the data‐snooping bias common in technical analysis research. Futures prices from 24 markets are used in rule generation. Rules for only two of the markets are capable of generating profits at the 5% level of significance using out‐of‐sample data, lending little support for technically based systems. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:643–660, 2005