Designing Automatic Re-balancing Model Using Technical Analysis Concept of Divergence

Subject Areas : Financial Knowledge of Securities Analysis

S. M. Lale Sajjadi ¹ , S. Hojjat Vakili ² , S. Babak Ebrahimi ³

1 - Msc Financial Engineering of Khaje Nasirodin Toosi University.
2 - Msc Financial Engineering of Khaje Nasirodin Toosi University.
3 - Faculty member of Khaje Nasirodin Toosi University.

Received: 2017-03-07 Accepted : 2017-07-06 Published : 2019-03-21

Keywords: Automated re-balancing model, Divergence, Meta-heuristic algorithms, portfolio, Technical Analysis,

Abstract :

The classical efficient market hypothesis states that it is not possible to beat the market by developing a strategy based on historical price series. In this paper we propose a profitable automatic trading system based on the divergence definition in relative strength index and using other technical analysis tools which presents empirical evidence confronting the classical efficient market hypothesis. In order to validate the developed solution an extensive evaluation was performed, comparing the designed strategy against the market itself and several other investment methodologies. An intraday database comprised of 59 symbols from NYSE in The time span 2010 to 2016 was employed. The whole sample is categorized over two sub-periods, training and widening its validity. By enjoying Meta-heuristic algorithms the rules in the first sub-period was improved. Then, in the second division the improved model was evaluated. The results indicates that this model improved predictability power and its performance is better than buy and hold and random strategies

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