Profitability of technical stock trading: Has it moved from daily to intraday data, страница 10

Hence, the high ratio between the average duration of profitable and unprofitable positions (2.73 on average) is the main reason for the profitabilityof technical stocktradingbased on30-minutes-data(Fig.7). This ratio reflects the exploitation of persistent stock price movements by technical models.

4.4. Clusters of technical models

In this section I address the following two questions: Are there groups of technical models which have a similar pattern of profitability in common? Do these groups of (relatively) homogenous models differ from each other also with respect to their overall profitability?

Fig. 4. Profitability and riskiness of 2580 technical trading systems 1983–2007. S&P 500 futures market, 30-minutes-data.

In order to detect similarities in the trading behavior of certain groups of technical models, statistical clustering techniques were used. These methods classify all models into different groups (clusters) under the following condition: Minimize the differences between the models (with respect to the components of the profitability in our case) within each cluster and maximize the differences across the clusters. The simple approach called K-Means Cluster Analysis was adopted (provided by the SPSS software package). For this approach, the number of clusters has to be predetermined. In our case three clusters are sufficient to illustrate characteristic differences in the trading behavior of technical models, i.e., models which “specialize” on short-term, medium-term and long-term trends in 30-minutes-stock prices.

Table 5 shows the results of the cluster analysis. The 165 models of cluster 1 produce the highest numberof openpositions (635.3 per yearon average), mainly for that reason the duration of profitable positions is relatively short (0.8 days on average). Hence, cluster 1 comprises those (fast)modelswhicharemostsensitivetopricechanges.Asaconsequence, these models “specialize” on the exploitation of short-term price trends. The 642 models of cluster 2 signal 327.8 open positions per year, the profitablepositionslast1.7daysonaverage.Mostmodelsbelongtocluster 3 which comprises 1773 (slow) models which produce 151.3 open positions per year, while their profitable positions last 3.1 days on average.

The average gross rates of return differ significantly across the three clusters. The fast models of cluster 1 perform by far best. These models