PROFITABILITY OF TRADING RULES BASED ON THREE MOVING AVERAGES

Abstract

Conventional moving-average trading rules seldom use more than two moving averages. This article proposes new trading rules combining the use of short, medium and long-term moving averages. The trading strategies developed in this article are applied to 12 major stock market indices. For each trading rule, the profitability of the simple, weighted and exponential moving averages over a 15-year period are evaluated. Our moving-average trading rules perform remarkably well in the Greater China area, where some of the trading strategies generate an annualized return of 25%.