"Computer Simulations Reveal Benefits of Random Investment Strategies Over Traditional Ones"

There is a link at the end of the article to the original research paper.

Would love to hear all dailyspec readers comments.

Alex Castaldo replies:

This article is written by some Italian physicists who like to play with stock market data. It does not tell me anything about real world investing.

The title of the original paper is "Are random trading strategies more successful than technical ones?". Somehow in the news article "technical strategies" was changed to "traditional strategies", distorting the meaning. The specific four strategies considered are 7-day momentum, RSI (relative strength index), reversal of the previous day and MACD (Moving Average Convergence Divergence).  (How many traditional investors such as mutual funds or pension funds use MACD etc. to manage their billion dollar portfolio?).

The paper measures "success" by the percentage of times the subsequent direction of the market was correctly predicted (a number between 0 and 100%). In the real world success is measured by the amount of money made, not just the success ratio and it has to be judged in view of the level of risk taken (which the paper does not consider at all).

This is an example of an impressive looking paper, with beautiful figures and charts, numerous (55) footnotes but *SIGNIFYING NOTHING* and having no value to investors or traders. It does not even tell us whether the technical rules would have worked or not with real money.


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