Can the market be beaten using simple trading strategies?

Abstract

The use of technical analysis as a tool used by traders to beat the market has become increasingly popular. This paper looks to test the efficacy of some very basic trading strategies based on specific technical indicators at beating the market. The method used was simple and consisted of various buy and sell signals. All trades were recorded, and the returns generated, including dividends, were compared to two benchmarks - the S&P 500 index and a customised buy and hold strategy. Gathered results show that although all strategies used were able to generate positive returns, only the strategy based on the Golden Cross technical indicator was able to beat the returns of the benchmark. However, it was also noted that some tweaks to the other strategies could very possibly lead to increased returns. Special notice was also made to the substantial returns generated by the second benchmark used which was based on a buy and hold investing strategy incorporating key fundamental ratios. These findings led to the conclusion that although it is possible to beat the market through the use of technical analysis, it is still much more rewarding to carefully pick certain stocks based on fundamental factors and stick to them.