“The effectiveness of technical trading strategies: Evidence from Indian equity

markets”

Harikrishna Tadas
Jeevan Nagarkar
Sushant Malik
AUTHORS Dharmesh K. Mishra

Dipen Paul

Harikrishna Tadas, Jeevan Nagarkar, Sushant Malik, Dharmesh K. Mishra and

Dipen Paul (2023). The effectiveness of technical trading strategies: Evidence
ARTICLE INFO
from Indian equity markets. Investment Management and Financial Innovations,
20(2), 26-40. doi:10.21511/imfi.20(2).2023.03

DOI http://dx.doi.org/10.21511/imfi.20(2).2023.03

RELEASED ON Tuesday, 04 April 2023

RECEIVED ON Thursday, 22 December 2022

ACCEPTED ON Tuesday, 14 March 2023

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JOURNAL "Investment Management and Financial Innovations"

ISSN PRINT 1810-4967

ISSN ONLINE 1812-9358

PUBLISHER LLC “Consulting Publishing Company “Business Perspectives”

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NUMBER OF REFERENCES NUMBER OF FIGURES NUMBER OF TABLES

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© The author(s) 2023. This publication is an open access article.

businessperspectives.org
Investment Management and Financial Innovations, Volume 20, Issue 2, 2023

Harikrishna Tadas (India), Jeevan Nagarkar (India), Sushant Malik (India),

Dharmesh K. Mishra (India), Dipen Paul (India)

The effectiveness
BUSINESS PERSPECTIVES
LLC “СPС “Business Perspectives” of technical trading
Hryhorii Skovoroda lane, 10,
Sumy, 40022, Ukraine
www.businessperspectives.org
strategies: Evidence
from Indian equity markets
Abstract
The purpose of the study was to analyze the effectiveness of technical trading strate-
gies in trading stocks of selected Indian companies represented in the Nifty 50 Index.
The research was done using secondary data from January 2022 to August 2022.
Hourly share prices of 14 largest companies as per market capitalization from 14 dif-
ferent sectors from the Nifty 50 Index were considered as a part of the study. Simple
Moving Average, Exponential Moving Average – Relative Strength Index and Bollinger
Bands – Relative Strength Index – strategies considered in the study. It was found that
strategy based on Bollinger Bands and Relative Strength Index performed the best.
Received on: 22nd of December, 2022 Performance was considered with respect to both the number of stocks having a net
Accepted on: 14th of March, 2023 profit and the number of stocks that were able to outperform the buy-and-hold strat-
Published on: 4th of April, 2023 egy for the time period considered. The study considered several combined strategies
and performance indicators, whereas previous studies used limited indicators. Out
© Harikrishna Tadas, Jeevan Nagarkar, of the 14 stocks considered, the Simple Moving Average strategy was able to gener-
Sushant Malik, Dharmesh K. Mishra, ate net profit for 8 stocks and it outperformed the buy-and-hold strategy for 6 stocks,
Dipen Paul, 2023 Exponential Moving Average – Relative Strength Index strategy generated net profit for
6 stocks and it outperformed the buy-and-hold strategy for 5 stocks, and the Bollinger
Harikrishna Tadas, Post Graduate Bands – Relative Strength Index generated net profit for 11 stocks and it outperformed
Student, Symbiosis Institute of the buy-and-hold strategy for 10 stocks. The Bollinger Bands – Relative Strength Index
International Business, Symbiosis strategy was able to outperform as it was more dynamic and entered and exited posi-
International (Deemed University), tions actively.
Pune, India.
Jeevan Nagarkar, Assistant Professor,
Symbiosis Institute of International
Keywords equity performance, investing, Nifty 50, prediction,
Business, Symbiosis International technical analysis, trade indicators, India
(Deemed University), Pune, India.
JEL Classification G11, G17
Sushant Malik, Assistant Professor,
Symbiosis Institute of International
Business, Symbiosis International
(Deemed University), Pune, India.
INTRODUCTION
(Corresponding author)
Dharmesh K. Mishra, Associate Investing in the stock markets and trading securities in the stock mar-
Professor, Symbiosis Institute of
International Business, Symbiosis ket has gained a lot of popularity in India and awareness of this is
International (Deemed University), growing in the country. When an individual first enters the equity
Pune, India.
market for trading or investing purposes, one of the concepts which
Dipen Paul, Assistant Professor,
Symbiosis Institute of International they learn, are the many different types of technical indicators used
Business, Symbiosis International for analysis. Technical indicators are those measures that are based on
(Deemed University), Pune, India.
the principle that the past and present performance of a stock or eq-
uity can be used to determine the future value of the same. Technical
indicators are used to anticipate the future movement of a stock.

This is an Open Access article, When considering taking a position in the market, many factors must
distributed under the terms of the be taken into consideration such as the fundamentals of a company,
Creative Commons Attribution 4.0
International license, which permits factors like industry outlook, macroeconomic factors, technical as-
unrestricted re-use, distribution, and pects of the traded security are some of the factors that are consid-
reproduction in any medium, provided
the original work is properly cited. ered when identifying trading stocks of a company. The fundamen-
Conflict of interest statement: tal aspects of a company contain factors such as the revenue, profits,
Author(s) reported no conflict of interest a company’s assets, liabilities, financial leverage, potential of growth,

26 http://dx.doi.org/10.21511/imfi.20(2).2023.03
 Investment Management and Financial Innovations, Volume 20, Issue 2, 2023

past performance and future performance, based on the headwinds and tailwinds it might face in its
operations, how it performs with respect to its peers, the present scenario and the future prospects of
the industry in which the company under analysis belongs to, and the macroeconomic conditions. The
technical aspects of a stock can consist of the price action of the stock, whether the counter is in an
overbought zone or an oversold zone, market trend, etc. Both traders and investors alike use technical
indicators to make decisions regarding when to enter a trade, when to exit a trade, and in evaluating the
current trend of the market. The study will evaluate the outcome when a trader or an investor makes
decision regarding a trade based purely on technical strategies which has been created by using different
kinds of technical indicators. The research will also map the gains against the various trading strategies.

1. LITERATURE REVIEW sights on stocks, is what can be defined as tech-

AND HYPOTHESES nical analysis. Technical analysis and the many
different indicators that are used for the same ba-
The study and analysis of historical stock prices sically work by considering the historical prices of
is an activity that has been performed since the securities. Many investors and traders use these
advent of the market, and this activity will con- indicators to come up with strategies they use in
tinue to grow in the future. There has been a sig- deciding when to enter and exit trades. The inter-
nificant increase in retail participation in the pretation of these indicators is subjective to the
Indian stock markets. As India’s economy grows, individual. Many investors and traders often con-
its stock market will develop, which is accompa- sider these indicators to be fool proof in the results
nied by an inflow of capital and an increase in the they generate. However, there has also been dis-
number of investors participating in the markets. cussion and research on how the variations seen
It was also observed how the number of investors in the stock prices are similar to the values, which
who opened an account with brokers increased can be generated from a simple chance model and
and how trading activities of established inves- that changes generated in the stock prices behave
tors increased during the COVID-19 pandemic identical to outcome of a roulette wheel (Roberts,
(Ortmann et al., 2020). The fear of missing out on 1959). Research done in the past has also suggest-
earning significant returns and the greed of earn- ed that macroeconomic news related to the fun-
ing more also influences retail investors and their damentals does not have a significant impact on
decisions (Gupta & Shrivastava, 2022), which can the share price, and evidence has been found on
again lead to an influx of retail investors in stock how the stock market’s reaction to macroeconom-
market. India has also seen a rise in smartphone ic news is dependent on the state of the economy,
application, which allows hundreds of thousands for example, the announcement of better-than-ex-
of Indians to trade daily, a process for which peo- pected results in strong economic times and good
ple earlier relied on stock brokers (Sumant et al., conditions will have a relatively weaker response
2022). Consequently, there is an ease in perform- than when that same announcement might be
ing transactions in the stock market. There has made during the stage of weak economy and bad
been a rapid increase in the number of traders and conditions. Another factor that can cause chang-
investors in the stock market, who might lack the es in stock prices is the anticipation of cash flows
basic knowledge of the fundamentals of investing of companies across different states of economy
and trading. Now, many financial analysts and (McQueen & Roley, 1993).
traders are sure that the economic and fundamen-
tal aspects of the security under consideration are Studies have been done on the effectiveness of
an important aspect in determining the price of trading strategies, signals, and indicators in differ-
a security, many are also of the belief and opin- ent stock markets. Studies have illustrated how
ion that the historical prices of the securities and models using technical rules provide excess re-
the patterns and trends they create can give them turns in comparison to a simple buy-and-hold
insights on the movement of the security. The em- strategy (Gençay, 1998). There is a positive correla-
pirical analysis of these historical security prices, tion between stock market development and eco-
which is then used to come up with different in- nomic growth of a country (Mohtadi & Agarwal,

http://dx.doi.org/10.21511/imfi.20(2).2023.03 27
Investment Management and Financial Innovations, Volume 20, Issue 2, 2023

2001). Considering emerging markets, specifically, are predictable, however this predictability varied
the Asian stock markets of Malaysia, Thailand, across different industries, where some sectors
and Taiwan, it has been found that technical trad- and industries are more predictable that others,
ing strategies do have predictive ability, and they which can then lead to more profitability (Narayan
can help in making decisions regarding when to & Bannigidadmath, 2015). Further study showed
enter and exit trades. Also, the buy or sell signals that the magnitude of predictability varies across
generated in US markets can be used in the Asian sectors, and some sectors of the Indian stock mar-
markets (Bessembinder & Chan, 1995). Another ket are more profitable than others (Narayan et al.,
South Asian market study that used moving aver- 2014). Research was also done to find whether the
ages in its technical strategy in making trading profitability of the Indian stock markets gave ap-
decisions suggests that equity returns in these propriate compensation for the risks present in
markets are predictable, and this also rejected the the market. This research has revealed that over
hypothesis that return earned by employing trad- the time period considered, various industries
ing strategy is equal to the buy-and-hold strategy, have been profitable and most of the industries
also called the naïve strategy (Gunasekarage & from the nine industries considered were profita-
Power, 2001). Another such study was also per- ble. The paper also talked on how the Indian stock
formed on other south east Asian countries, where market profits showed seasonality (Narayan et al.,
the profitability of technical strategies was exam- 2017). A study done on predictability of 93 techni-
ined against the buy-and-hold strategy, and it was cal indicators on the S&P 500 returns did not find
found that the emerging markets of Philippines, any conclusive answers (Fang et al., 2014). Another
Indonesia, etc., generated stronger and profitable study conducted concluded that there is lower li-
performance in comparison to the mature mar- quidity in emerging markets in comparison to de-
kets of Singapore. However, it was also concluded veloped markets and the results of the study also
in the research that these returns were significant- indicated that trading rules presented the ability
ly diminished by the various transaction cost, to forecast when they were applied to emerging
hence, giving minimal net returns. Apart from markets. The research also mentioned that ineffi-
these findings, it was also found that these techni- ciencies in the emerging markets can be taken ad-
cal trading indicators could not be used to time vantage of and used in predicting price move-
the markets. The research also spoke about how ments (Ratner & Leal, 1999). When considering
following the trading strategy can be useful to in- data from the S&P 500 and assessing whether
dividual investors in dealing with the biases that technical trading strategy can outperform the in-
are usually present while trading or investing. vestment strategy of buy and hold, it was found
Biases can be when the investor can hold on to los- that technical indicator strategies that are based
ing stocks for too long or quickly let go of poten- on the over and under reaction effects in the mar-
tially winning stocks. Finally, the research also ket perform better than the buy-and-hold strategy
concluded that the technical strategies are also not in only certain scenarios. The research concluded
reliable in predicting the direction of the markets that the buy and hold strategy is also superior in
(Tharavanij et al., 2015). Similar research was also seasonality aspects. The commonness of trading
conducted in the Chilean market, which also ex- strategies using moving averages is understanda-
hibited the similar trend (Parisi & Vasquez, 2000). ble due to its ability to generate returns, which are
The research on analyzing the profitability of tech- adjusted to the risk and the ability to generate a
nical trading rule was also conducted on the positive alpha in comparison to other risk factors,
Brazilian stock market, and it was found that mo- especially when the market is highly volatile
mentum indicators performed better and outper- (Dichtl, 2020). Current literature indicates that
formed technical trading rules based on moving there is a direct relation between the volume of
averages. Finally, it was also concluded that the stock traded and the prices of stocks in the Arab
best trading strategy outperformed the passive ap- markets. These results are also synchronous with
proach of buy and hold in the Brazilian stock mar- other similar studies in other markets, which con-
kets (Miralles-Quiros et al., 2018). Now coming to cluded that volume volatility has a correlation to
the predictability of the Indian stock market, it increasing price volatility (Sabri, 2008). Technical
was found that the Indian stock market returns indicators are not always suitable for an individual

28 http://dx.doi.org/10.21511/imfi.20(2).2023.03
 Investment Management and Financial Innovations, Volume 20, Issue 2, 2023

investor and are appropriate for professional in- costs (Frömmel & Lampaert, 2016). Research on
vestors as technical indicator signals can lead an industry specific technical indicators perfor-
investor to make decisions, which are very opti- mance has also been done. One such study was
mistic and which can in some instances be conducted to find the effectiveness of these indi-
wrong and lead to a loss (Hoffmann & Shefrin, cators on prominent US tech companies, and it
2014). Studies conducted on the New Zealand was found that when these indicators are applied
markets have found that the markets in the capably, the investor can generate profits from
country have become more efficient in recent them (de Almeida, 2020). Another study was
times due to the increase in informational effi- done from steel industry perspective, and it was
ciency. The increase in the amount of informa- concluded that the technical indicator used in
tion available to the investor has been increasing the study can provide profits (Zuzik et al., 2014).
over time, and this has led to more efficient mar-
kets. Due to this, the effectiveness of technical Analyzing the studies on specific technical in-
trading strategy has decreased, and it was con- dicators, research on the effectiveness of simple
cluded that these strategies do not add value to moving averages and displaced moving averages
New Zealand investors (Marshall & Cahan, in the Indian equity markets found that both the
2005). Analysis of trading strategies and rules indicators were successful in beating the market.
was also done in the MENA markets. It was The study also concludes that the markets are
found that the efficiency level varied in the inefficient (Kakani & Sundhar, 2011). Multiple
MENA markets, with some country’s markets leading technical indicators gave predictability,
being more efficient than others. The study also which can improve financial forecasting (Hidayat
explained how strategies used, which are using & Sihabuddin, 2021). A study evaluated the effec-
different kinds of technical indicators, can vary tiveness of moving averages of different intervals
depending on the costs that will be incurred on the US and Canada markets, and these indica-
during the transaction (Bley & Saad, 2020). tors were able to explain variations in the markets
Another study concluded that profitability in the (Lento, 2011). An Australian market study using
Asian markets can be achieved even after trans- moving averages found the profits generated to
action costs are considered (Hatgioannides & be contrarian in nature (Pavlov & Hurn, 2012). A
Mesomeris, 2007). Technical trading strategies study was also conducted where BRICS markets
using indicators like moving averages and were considered and the performance of the mov-
MACD in the Brazilian stock market have a ing average strategies was divided here, where in
higher probability of generating profits but it some countries the technical strategy beat the
was unlikely that they will beat the buy and hold buy-and-hold strategy and vice versa (Sobreiro et
strategy, when considering the impact of costs al., 2016). Research done on the relative strength
associated with the trading transactions (da index, another type of the technical indicator, in
Costa et al., 2015). Research has also been done the US markets found it to perform better than
on the use of technical analysis by fund manag- the buy-and-hold strategy. Also, using this indi-
ers. It was concluded that majority of these pro- cator in combination with trend following indi-
fessionals use technical indicators. Also, techni- cators helped in dealing with the market volatil-
cal analysis findings are used in conjunction ity (Faber, 2012). Another study done on relative
with fundamental analysis, and it is reasonable strength index indicator in Indian equity mar-
to use technical indicators when shorter time kets concluded this indicator to be effective, and
frames are considered (Menkhoff, 2010). A study coupled with other technical indicators and fun-
was also performed to find the impact of fre- damentals can provide better results (Bhargavi et
quency on the market returns when using tech- al., 2017). Studies have also been conducted on
nical indicators; this study found that the re- the use of machine learning techniques in pre-
turns generated from these indicators when they dicting trend, and it was found that these tech-
are used at higher frequency are better, and this niques bettered both the buy-and-hold strategy
can be aided by a steady central bank exchange and the technical trading strategies (Stanković et
rate policy. The returns generated by these indi- al., 2015). Research has been done to find wheth-
cators get minimized because of transaction er the technical strategies using technical indica-

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Investment Management and Financial Innovations, Volume 20, Issue 2, 2023

tors can be used profitably in the forex markets, 2. METHODS

as well and it was found that in the highly volatile
forex markets, these technical strategies can be This study compares different trading strategies
used profitably when using them together with with the investment approach of buy and hold in
proper money management and by using fun- order to help in the assessment. The research is
damental information (Vajda, 2014). There have based on secondary dataset. The data considered
been studies on technical indicators in the past, for the study is for the time period from January
the current study will evaluate trading strategies 1, 2022 till August 28, 2022. The study considers
created by combining technical indicators in the companies with the highest market capitaliza-
Indian equity markets. The three strategies used tion, and each company belongs to one of the 14
in the study are based on hourly share prices of different sectors, which are present in the Nifty
different companies as inputs for generating the 50 index of the Indian equity market. The 14 sec-
triggers to enter and exit trades. tors from which the companies are considered are
Automobile and Auto Components, Chemicals,
The following are the hypotheses for the study: Construction, Construction Material, Consumer
Durables, Fast Moving Consumer Goods, Financial
H1: The SMA Crossover Strategy outperformed Services, Healthcare, Information Technology,
its peer strategies and beat the buy-and-hold Metals & Mining, Oil Gas & Consumable Fuels,
strategy. Power, Services, Telecommunication. The compa-
nies considered for the study are depicted in the
H2: The Exponential Moving Average – RSI Appendix section, Table A1. To prevent the obser-
Strategy outperformed its peer strategies and vations from having biases, companies from dif-
beat the buy-and-hold strategy. ferent sectors have been considered. The process
of applying the trading strategies is done on the
H3: The Bollinger Bands – RSI Strategy outper- Trading View platform. All the strategies had an
formed its peer strategies and beat the buy- initial capital of INR. 10000. This capital is used
and-hold strategy. in purchasing shares. The logic of the strategy

Database

Trading Strategy

Exit Position + Next Data Point

Next Data Point

Strategy
Conditions No
Satisfied?

Next Data Point

Yes

Take
Maintain Position

Figure 1. Flowchart depicting the framework for implementing a trading strategy

30 http://dx.doi.org/10.21511/imfi.20(2).2023.03
 Investment Management and Financial Innovations, Volume 20, Issue 2, 2023

being tested has to be composed in the platform, indicator used in displaying the momentum of the
which is also presented in Figure 1. These formu- stock price. RSI can be used to identify whether
lated strategies are in the form of code that has the security is in an overbought or oversold state.
been fed and programmed in the platform.
100
= 100 −
RSI , (3)
The variables that are used in evaluating the 1 + RS
strategies are net profit, gross profit, gross loss,
max run-up, max drawdown, buy & hold return,
nup
Sharpe ratio, Sortino ratio, profit factor, number RS = , (4)
of winning trades, number of losing trades & per- ndown
cent profitable.
where nup = average of n-day up closes; ndown = av-
The technical indicators that are used in the strate- erage of n-day down closes.
gies are simple moving averages, exponential mov-
ing averages, relative strength index and Bollinger Bollinger bands are plotted at some standard de-
bands. Simple moving averages are some of the viations both above and below a simple moving
most basic kinds of indicators which are used in average. Generally, the upper and lower bands
trading. These are derived by adding the most re- are two standard deviations above and below a
cent share prices and dividing the total number of 20-time period simple moving average. The dis-
periods in consideration. tance between the bands signifies the price volatil-
n A
ity. The further apart the bands are from the SMA,
SMA = i =1 i , ∑n
(1) the more volatile is the price action and vice versa.
A strong trend can be anticipated if the stock price
where An = price of asset at period n; n = total breaches the Bollinger bands.
number of periods.
Three trading strategies have been analyzed and
Thus, the average changes every period and is tested in this research study. The first strategy is a
therefore moving across the chart when plotted. simple moving average crossover strategy. In this
They can be used in identifying an uptrend or strategy, 2 SMAs of different durations are being
a downtrend. A shorter-term moving average used. Trade entry and exit signals are generated
gives a closer depiction of the recent price ac- when the two different duration SMAs cross each
tion. Whereas, a longer-term moving average other. The short-term simple moving average is
smooths out these price volatilities. In simple considering 50 time periods and the long term
moving average, equal weightage is given to each simple moving average is considering 200 time
of the prices considered within the time period periods. When the short-term simple moving av-
during the calculation. This does not give an ac- erage crosses over the long-term simple moving
curate depiction of the recent price trend. Older average, a positive trend is indicated, thus a trade
prices should have lower weightage in compar- entry or a buy signal is generated. Whereas, when
ison to the most recent prices, as the most re- the short-term simple moving average crosses un-
cent prices have higher impact on the upcoming der the long-term simple moving average, a neg-
price trends. To deal with this, exponential mov- ative trend is being indicated, thus a trade exit or
ing averages are used. a sell signal is generated. In the second strategy,
instead of using simple moving averages, the study
=
EMA current EMAprevious + will be employing exponential moving averages.
(2) The study will also be validating the buy signal
+ α [Pr icecurrent − EMAprevious ] . which are generated by verifying the RSI indicator,
which is a momentum indicator. In this strategy,
However, this high weightage to recent values can when the short term or the faster EMA will cross
also negatively impact the average, when there over the long term or slower EMA and the rela-
is high volatility in the prices. Relative Strength tive strength index is greater than 50, a trade entry
Index is a momentum indicator. It is a technical or a buy signal will be generated. If any of these

http://dx.doi.org/10.21511/imfi.20(2).2023.03 31
Investment Management and Financial Innovations, Volume 20, Issue 2, 2023

two conditions are not fulfilled, then that signi- stocks. The EMA – RSI Strategy was able to out-
fies a trade exit or a sell signal. The third strategy perform the buy-and-hold investing strategy for 5
uses Bollinger bands and relative strength index stocks. Analyzing specific stocks, it was observed
indicators. In this case, when the closing price of that the EMA – RSI Strategy had produced the
the stock is higher than the simple moving aver- highest net profit percentage, which was equal to
age component of the Bollinger Band and it is sup- 4.86 %, when trading Maruti Suzuki Ltd. Over the
ported by a relative strength index which is greater time period considered, the strategy undertook
than 50, a trade entry signal is generated. When only 3 trades in Maruti Suzuki Ltd., of which 2
the share price touches the lower Bollinger band or trades were winning and 1 trade was losing.
if the relative strength index is below the appropri-
ate level, a trade exit signal is generated. Finally, evaluating the performance of the
Bollinger Bands – RSI Strategy, the study observed
that the strategy was able to generate net profit for
3. RESULTS 11 stocks and a net loss for 3 stocks. The Bollinger
Bands and RSI Strategy was able to outperform
All strategies were run on the hourly charts of the buy and hold investing strategy for 10 stocks.
companies as shown in Figures 2, 3 and 4. The Analyzing specific stocks, it was observed that the
Simple Moving Average (SMA) Crossover Strategy Bollinger Bands – RSI Strategy had produced the
was able to generate net profit for 8 stocks and a highest net profit percentage of 19.8 %, when trad-
net loss for 6 stocks. The SMA Crossover Strategy ing Adani Ports Ltd. Over the time period consid-
was able to outperform the buy and hold invest- ered, the strategy undertook 25 trades in Adani
ing strategy for 6 stocks. Analyzing specific stocks, Ports Ltd. of which 10 trades were winning and
it was observed that the SMA Crossover Strategy 15 trades were losing. The Bollinger Bands – RSI
had produced the highest net profit percentage strategy in general participated in a much higher
which was equal to 25.71 %, when trading UPL number of trades in comparison to the other two
Ltd. Over the time period considered, the strate- strategies. The minimum number of trades under-
gy undertook only 2 trades in UPL Ltd., and both taken by Bollinger Band – RSI Strategy were 23,
were winning or profitable trades. and the maximum number of trades it took were
32. Whereas, minimum and maximum number of
The Exponential Moving Average (EMA) & trades by SMA Crossover Strategy were 2 and 4, re-
Relative Strength Index (RSI) Strategy was able to spectively, and the minimum and maximum num-
generate net profit for 6 stocks and a net loss for 8 ber of trades by EMA – RSI Strategy were 1 and 4,

Figure 2. SMA Crossover Strategy applied on Maruti Suzuki Ltd.

32 http://dx.doi.org/10.21511/imfi.20(2).2023.03
 Investment Management and Financial Innovations, Volume 20, Issue 2, 2023

Figure 3. EMA & RSI Strategy applied on Adani Ports & SEZ Ltd.

Figure 4. Bollinger Bands & RSI Strategy applied on Asian Paints Ltd.

respectively. The average profitability of trades un- thereby preventing loss and a decrease in capital.
dertaken by Bollinger Band – RSI Strategy across Therefore, the study’s results support hypothesis
the 14 stocks considered was 39.54%. Thus, the H3. The results of the SMA Crossover Strategy,
Bollinger Band – RSI Strategy was much more EMA – RSI strategy and Bollinger Bands – RSI
dynamic and active, as demonstrated by the num- Strategy are represented in Tables A2, A3, and A4
ber of trades carried out according to the strategy. of the Appendix.
Participating in greater number of trades present-
ed the strategy with more opportunities to either 4. DISCUSSION
enter a position by buying shares – thereby cap-
turing a stocks uptrend leading to the generation The results of the study show that trading strate-
of profit and an increase in capital or exit a posi- gy based on Bollinger Bands – Relative Strength
tion by selling shares during a stock’s downtrend – Index (RSI) outperformed the remaining two

http://dx.doi.org/10.21511/imfi.20(2).2023.03 33
Investment Management and Financial Innovations, Volume 20, Issue 2, 2023

strategies considered, which used Simple Moving spot exchange rate. In the study, the moving aver-
Average (SMA), Exponential Moving Average age crossover strategy consistently outperformed
(EMA) and RSI indicators. Findings from this the buy-and-hold strategy and the Bollinger bands
study are consistent with those discussed in the strategy did not, and this also concluded that the
prior literature. findings of the study could not be generalized in-
to stating that all trading rules are profitable. The
The results of the study are in line with Ni et al. results of the study are coherent with the study by
(2020) who showed that investors in stocks of Windasari et al. (2018), which explored trading
Taiwan 50 may be able to beat the markets by buy- strategies based on Bollinger bands and Williams
ing stocks when they hit the lower Bollinger band. Percent Range in the Indonesian Stock Exchange
This was shown by the abnormal positive returns over a one-year period. The strategy that had em-
generated. The study validated the results by con- ployed Exit Bollinger bands with confirmation by
sidering both daily and weekly data of stock pric- Williams Percent Range, where a position is en-
es and a different Bollinger Band trading strategy, tered when the close price of the stock is below the
which was different from this study, which consid- lower Bollinger band and when share is in oversold
ered hourly prices. It further discussed how tech- condition as per Williams % R and exits a position
nical indicators might contain some information, when close price of the stock is above the upper
which is embedded and not released. Bollinger band and the share is in overbought con-
dition, was the strategy with the best performance.
The results of the study are not aligned with those The research also had a strategy that utilized the
in the study by Lento and Gradojevic (2007), which middle band of the Bollinger, but it used Williams
checked the efficiency of different strategies, in- Percent Range instead of RSI, which is used in the
cluding strategies based on moving average cross- current study, for confirmation, and it had the sec-
over and Bollinger bands on the S&P/TSX 300 ond-best performance among the three strategies.
Index, the Dow Jones Industrial Average Index, In this research study, the best performing strate-
NASDAQ Composite Index, and the Canada/U.S. gy used Bollinger Bands and RSI for confirmation.

CONCLUSION
The aim of the study was to analyze the effectiveness of different technical trading strategies, name-
ly, the Simple Moving Average Crossover Strategy, The Exponential Moving Average – Relative
Strength Index Strategy and the Bollinger Bands – RSI Strategy, during the period under consider-
ation from January 1, 2022 to August 28, 2022. After testing all the hypotheses, the study highlight-
ed that the strategy based on Bollinger Bands and RSI performed the best out of the three strategies
considered, with respect to both the number of stocks having a net profit and the number of stocks
which were able to outperform the buy and hold strategy. Thus, the results support the hypothesis
H3 and reject hypotheses H1 and H2 . The reason why this strategy outperformed the other two is
because it was much more dynamic in executing the trades. This can be inferred by the total num-
ber of trades the strategy initiated during the period under consideration. The Bollinger Bands and
RSI strategy had an average of 26.5 executed trades across all the stocks, in comparison to the 3.2
and 3 average executed trades in the SMA Crossover and EMA & RSI strategy, respectively. Thus,
executing a higher number of trades gave the strategy more opportunity to generate profit and take
advantage of the uptrends in the market by creating and maintaining a market position and on the
other hand, exiting from a market position during market downtrends. It would thus be ideal for a
technical trading strategy to be active in entering and exiting position, as being agile in executing
trades presents the strategy with more opportunities to capitalize on favorable stock price move-
ments and market conditions. If both, the Sortino and the Sharpe Ratio is considered, higher the
value of these ratios, better it is for the investor as they signify that the strategy earns more return
per unit for the total risk and the downside risk, which have been taken by the strategies respec-
tively. Negative Sortino and Sharpe ratio signifies that the strategy generates lower returns than

34 http://dx.doi.org/10.21511/imfi.20(2).2023.03
 Investment Management and Financial Innovations, Volume 20, Issue 2, 2023

the risk-free rate. The Bollinger Bands and RSI strategy has had the highest number of positive
Sharpe and Sortino ratios for the stocks under consideration. In conclusion, the strategy based on
Bollinger Bands and RSI gave the best results.

This study is beneficial for investors and technical traders who would consider technical trading indi-
cators to aid them in confirming their trading decisions and further providing them with an overview
of the effectiveness of strategies based on indicators. The research is based on the assumption that the
results displayed for the time period under consideration will also hold true for different time periods.
However, the results will not be useful in the case of black swan events. Researchers can take this study
further by considering different units of time instead of the hourly data which has been considered in
this study. A longer time horizon can also be considered. Studying a longer time horizon will increase
the data points and it can even contain data from black swan events, thus giving results which have been
generalized even for the presence of black swan event. Researchers can also evaluate the effectiveness of
strategies by performing sector specific analysis by collecting data for companies from a specific sector.
There is also the possibility of evaluating efficiency of trading strategies using various types of technical
indicators.

AUTHOR CONTRIBUTIONS
Conceptualization: Harikrishna Tadas, Jeevan Nagarkar, Sushant Malik.
Data curation: Harikrishna Tadas.
Formal analysis: Harikrishna Tadas, Sushant Malik, Dharmesh K. Mishra.
Investigation: Jeevan Nagarkar, Dipen Paul, Dharmesh K. Mishra.
Methodology: Harikrishna Tadas, Jeevan Nagarkar, Sushant Malik, Dipen Paul, Dharmesh K. Mishra.
Supervision: Dharmesh K. Mishra, Jeevan Nagarkar, Sushant Malik, Dipen Paul.
Validation: Dipen Paul, Dharmesh K. Mishra.
Writing – original draft: Harikrishna Tadas, Jeevan Nagarkar, Sushant Malik.
Writing – review & editing: Sushant Malik, Dipen Paul, Dharmesh K. Mishra.
Software: Harikrishna Tadas, Sushant Malik, Dipen Paul.

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APPENDIX A
Table A1. List of companies considered for the study
S. No. Nifty 50 Sectors Companies
1 Automobile and Auto Components Maruti Suzuki India Ltd.
2 Chemicals UPL Ltd.
3 Construction Larsen & Toubro Ltd.
4 Construction Material UltraTech Cement Ltd.
5 Consumer Durables Asian Paints Ltd.
6 Fast Moving Consumer Goods Hindustan Unilever Ltd.
7 Financial Services HDFC Bank Ltd.
8 Healthcare Sun Pharmaceutical Industries Ltd.
9 Information Technology Tata Consultancy Services Ltd.
10 Metals & Mining JSW Steel Ltd.
11 Oil Gas & Consumable Fuels Reliance Industries Ltd.
12 Power Power Grid Corporation of India Ltd.
13 Services Adani Ports and Special Economic Zone Ltd.
14 Telecommunication Bharti Airtel Ltd.

http://dx.doi.org/10.21511/imfi.20(2).2023.03 37
 Table A2. SMA Crossover Strategy results
38

Investment Management and Financial Innovations, Volume 20, Issue 2, 2023

SMA Crossover Strategy

Company
Maruti Asian Sun Reliance Power Grid Adani
UPL LT Ultratech HUL HDFC Bank TCS JSW Steel Airtel
Suzuki Paints Pharma Industries Corp. Ports
Measure

1633.95 2 571.30 456.5 219.75 398.55 277 −1209.90 −990.45 −745.00 −1212.05 113.9 −615.60 2117.05 −1366.20
Net Profit
16.34% 25.71% 4.57% 2.20% 3.99% 2.77% −12.1% −9.9% −7.45% −12.12% 1.14% −6.16% 21.17% −13.66%

1870.3 2571.3 987.5 695.8 1026.45 1114.6 0 0 0 0 940.8 0 2444 0

Gross Profit
18.70% 25.71% 9.88% 6.96% 10.26% 11.15% 0% 0% 0% 0% 9.41% 0% 24.44% 0%

236.35 0 531 476.05 627.9 837.6 1209.9 990.45 745 1212.05 826.9 615.6 326.95 1366.2
Gross Loss
2.36% 0% 5.31% 4.76% 6.28% 8.38% 12.10% 9.90% 7.45% 12.12% 8.27% 6.16% 3.27% 13.66%

1633.95 2571.3 987.5 695.8 1026.45 1114.6 0 0 0 0 940.8 0 2444 0

Max Run-up
14.04% 20.45% 9.44% 6.81% 9.87% 10.85% 0% 0% 0% 0% 8.92% 0% 20.17% 0%

405.4 91.2 532.5 552.6 762.9 1055.2 1209.9 990.45 745 1212.05 432.9 615.6 345.8 1366.2
Max Drawdown
3.72% 0.81% 5.33% 5.53% 7.63% 10.55% 12.10% 9.90% 7.45% 12.12% 4.10% 6.16% 3.46% 13.66%

1185.3 269.1 608.5 −1078.85 230.85 859 −422.10 −47.85 −991.90 −5.60 603.6 1190.4 1334.45 371.7
Buy & Hold Return
11.85% 2.69% 6.09% −10.79% 2.31% 8.59% −4.22% −0.48% −9.92% −0.06% 6.04% 11.90% 13.34% 3.72%
http://dx.doi.org/10.21511/imfi.20(2).2023.03

Sharpe Ratio 0.485 0.678 0.203 0.062 0.125 0.069 −0.3 −0.41 −1.49 −1.259 0.178 −0.124 0.437 −0.294

Sortino Ratio 2.367 28.468 0.54 0.136 0.305 0.17 −0.395 −0.402 −0.83 −0.783 0.374 −0.181 1.968 −0.389

Profit Factor 7.913 N/A 1.86 1.462 1.635 1.331 0 0 0 0 1.138 0 7.475 0

Number Winning
2 2 1 1 1 1 0 3 0 0 1 0 2 0
Trades

Number Losing
1 0 2 2 2 3 4 1 3 4 2 2 1 4
Trades

Percent Profitable 66.67% 100% 33.33% 33.33% 33.33% 25% 0% 0 0% 0% 33.33% 0% 66.67% 0%
 Table A3. EMA and RSI Strategy results
http://dx.doi.org/10.21511/imfi.20(2).2023.03

EMA & RSI Strategy

Company
Maruti Asian Sun JSW Reliance Power Grid Adani
UPL LT Ultratech HUL HDFC Bank TCS Airtel
Suzuki Paints Pharma Steel Industries Corp. Ports
Measure

486.25 −1335.40 −208.00 −344.20 348.75 −793.60 308.15 −285.25 −1242.40 −27.95 188.45 371.25 417.45 −840.00
Net Profit
4.86% −13.35% −2.08% −3.44% 3.49% −7.94% 3.08% −2.85% −12.42% −0.28% 1.88% 3.71% 4.17% −8.4%

1276.9 721.4 1295.5 680 1275.15 941.1 1485.95 360.25 0 966.75 805.05 371.25 1129.2 545.4
Gross Profit
12.77% 7.21% 12.95% 6.80% 12.75% 9.41% 14.86% 3.60% 0% 9.67% 8.05% 3.71% 11.29% 5.45%

790.65 2056.8 1503.5 1024.2 926.4 1734.7 1177.8 645.5 1242.4 994.7 616.6 0 711.75 1385.4
Gross Loss
7.91% 20.57% 15.04% 10.24% 9.26% 17.35% 11.78% 6.46% 12.42% 9.95% 6.17% 0% 7.12% 13.85%

Investment Management and Financial Innovations, Volume 20, Issue 2, 2023

867.2 606.45 1295.5 680 1275.15 941.1 1485.95 223.3 0 966.75 805.05 371.25 1129.2 545.4
Max Run-up
8.27% 5.72% 13.23% 7.04% 12.32% 10.22% 14.42% 2.30% 0% 9.69% 7.90% 3.58% 10.84% 5.95%

1138.65 2260.3 1670 1196.95 1101.75 1998.7 1215 700.5 1242.4 1185.2 702.7 634.5 898.35 1850.4
Max Drawdown
10.94% 21.31% 16.70% 11.97% 11.02% 19.99% 12.15% 6.91% 12.42% 11.85% 7.03% 6.35% 8.98% 18.50%

1726.25 −633.10 125 −1426.00 858.3 1120 −705.30 910.25 −1739.30 7 −49.20 −726.75 2056.6 811.3
Buy & Hold Return
17.26% −6.33% 1.25% −14.26% 8.58% 11.20% −7.05% 9.10% −17.39% 0.07% −0.49% −7.27% 20.57% 8.11%

Sharpe Ratio 0.12 −0.268 −0.013 −0.143 0.093 −0.144 0.065 −0.26 −0.925 −0.025 0.037 N/A 0.096 −0.273

Sortino Ratio 0.19 −0.271 −0.018 −0.197 0.164 −0.177 0.117 −0.273 −0.679 −0.049 0.055 N/A 0.176 −0.303

Profit Factor 1.615 0.351 0.862 0.664 1.376 0.543 1.262 0.558 0 0.972 1.306 N/A 1.587 0.394

Number Winning
2 2 1 1 1 1 2 2 0 1 2 1 2 1
Trades

Number Losing
1 1 1 2 2 2 2 1 3 3 1 0 1 3
Trades
39

Percent Profitable 66.67% 66.67% 50% 33.33% 33.33% 33.33% 50% 66.67% 0% 25% 66.67% 100% 66.67% 25%
 Table A4. Bollinger Bands and RSI Strategy results
40

Investment Management and Financial Innovations, Volume 20, Issue 2, 2023

Bollinger Bands & RSI Strategy

Company
Maruti Asian Sun JSW Reliance Power Grid Adani
UPL LT Ultratech HUL HDFC Bank TCS Airtel
Suzuki Paints Pharma Steel Industries Corp. Ports
Measure

639.45 1778.85 383.9 −493.80 1787.15 1758 1084.3 −423.95 129.5 138.25 1597.25 −828.05 1980.45 247.4
Net Profit
6.39% 17.79% 3.84% −4.94% 17.87% 17.58% 10.84% −4.24% 1.30% 1.38% 15.97% −8.28% 19.80% 2.47%

3275.4 4694.75 2740.8 1912.35 4020.6 3706 4086.25 3116.2 1712.45 3269.35 3882.8 2495.45 4355.75 3156.85
Gross Profit
32.75% 46.95% 27.41% 19.12% 40.21% 37.06% 40.86% 31.16% 17.12% 32.69% 38.83% 24.95% 43.56% 31.57%

2635.95 2915.9 2356.9 2406.15 2233.45 1948 3001.95 3540.15 1582.95 3131.1 2285.55 3323.5 2375.3 2909.45
Gross Loss
26.36% 29.16% 23.57% 24.06% 22.33% 19.48% 30.02% 35.40% 15.83% 31.31% 22.86% 33.24% 23.75% 29.09%

1412.9 2673.7 1275.05 967.2 2907.45 2589.2 1776.6 1013.55 888.15 1548 2043.65 1218.05 2283.1 1128.4
Max Run-up
13.05% 21.98% 12.10% 9.85% 24.29% 21.65% 15.37% 9.42% 8.60% 13.64% 17.39% 11.82% 18.95% 10.32%

1203.65 1301.35 1443.25 1199.3 1128.85 806.4 1643.5 1240.1 779.5 2408.2 1100.8 1582.15 1026 1365.9
Max Drawdown
11.38% 12.16% 13.80% 11.99% 11.09% 7.95% 14.22% 11.52% 7.67% 21.21% 9.37% 15.35% 9.02% 12.50%

1434 −973.70 −366.75 −1405.00 82.7 1328 −437.70 645.7 −1570.90 −187.50 −42.20 −268.80 1703 915.6
Buy & Hold Return
14.34% −9.74% −3.67% −14.05% 0.83% 13.28% −4.38% 6.46% −15.71% −1.87% −0.42% −2.69% 17.03% 9.16%
http://dx.doi.org/10.21511/imfi.20(2).2023.03

Sharpe Ratio 0.183 0.278 0.088 −0.147 0.397 0.427 0.323 −0.131 0.009 0.04 0.371 −0.225 0.353 0.053

Sortino Ratio 0.377 0.564 0.192 −0.212 0.905 1.108 0.635 −0.164 0.012 0.057 0.781 −0.273 0.665 0.078

Profit Factor 1.243 1.61 1.163 0.795 1.8 1.902 1.361 0.88 1.082 1.044 1.699 0.751 1.834 1.085

Number Winning
12 9 10 9 13 10 9 11 10 11 10 8 10 13
Trades

Number Losing
16 14 14 20 11 13 15 21 17 15 14 24 15 17
Trades

Percent Profitable 42.86% 39.13% 41.67% 31.03% 54.17% 43.48% 37.50% 34.38% 37.04% 42.31% 41.67% 25% 40% 43.33%