Abstract

Technical analysis is based on the assumption that the future price of a stock can be predicted from its history. Several technical trading systems exist for generating buy and sell signals in stock prices. Simple moving average crossovers are popular tools for trading. In this study, simple moving average crossovers with different periods are analyzed empirically on historical daily data of NIFTY 50 index. The profit and loss distribution in these trades are studied to identify profitable and stable crossover periods. The choppy price action known as whipsaws incur large number of small losses in the crossover based trading system. The phenomenon of rare trending price movements and its impact on the trading system are demonstrated.