Technical analysis : to test the accuracy of moving average, the relative strength index and the stochastic index

Abstract

The objective of this report is to test the accuracy of three technical tools,

namely the moving average, the relative strength index and the stochastic

index, using the Euroyen December 92 futures contracts traded in Simex.

Our report consists of six chapters.

The first chapter introduces the local market, the background of Simex, its

tools and participants and the Euroyen market.

In our second chapter, the basics of technical analysis such as momentum,

oscillator, trend, trendlines support and resistance are explained. Some of

these basics are modified and translated into tools to be used as indicators.

Foil owing this chapter is a detailed explanation of the moving average, the

relative strength index and the stochastic index we are going to test.

Chapter four deals with the software used in this analysis -- MetaStock . It is

a: popular tool used by many chartists because it is very user-friendly with

over more than 40 built-in indicators.

Chapter five is the analysis. Following strict assumptions of the rule, we buy

and sell when the indicators signals and calculate the profits and losses to

determine the accuracy of the tool. First, we analyze each tool individually to

test their efficiency. Then, we do combined prediction using the three tools

together.

Finally, in our last chapter, we conclude on the accuracy of these tools and

discuss their limitations.