Trading Strategies Using Technical Indicators: An Active Portfolio Management Approach

Abstract

The study aims to evaluate the effectiveness of active trading strategies developed using technical indicators against the buy-and-hold passive investment strategy. It uses the simple moving average (SMA), Bollinger band (BB), and moving average convergence divergence (MACD) as technical indicators to generate the buy and sell signals. The study uses the data of treasury bills as a proxy for a risk-free portfolio and the Nifty Total Return Index (TRI) as a proxy for a risky equity portfolio in daily frequency from June 30, 1999, to March 31, 2021. It creates the cumulative wealth index for the sample period using active portfolio management based on the buy and sell signals generated using various technical indicators. The findings suggest that SMA and MACD trading strategies provide better risk-adjusted returns than buy-and-hold and Bollinger band trading strategies. Also, the shorter days moving average outperforms the longer days moving average trading strategy. The trading strategies perform better during the bear market than the bull market.