Do More Signals Mean Higher Profits?

This paper examines the profitability of speculation trading by combining multiple technical indicators for entry requirements. The technical indicators considered in this paper include simple moving average and volume traded over different time horizons. Three different indicators were combined in thirty-two ways and the portfolios were followed for twelve years. Various methods of combining technical indicators will also be considered. The sample begins in January 2007 and it is chosen for purposes of analysing the impact of global financial crisis on trading. The performance of the different trading strategies will be evaluated by the annual risk-adjusted return of a portfolio. Trading costs are considered inconsequential in this case, given the proliferation of online brokerage companies, and will therefore be ignored. The results contain evidence to support that forecast combination could be beneficial when applying to trading environment. More generally, this paper provides evidence to support that the advantage of forecast combination goes beyond improving mean-squared errors, it could also improve performance based on realistic objective functions.