Using Simple Technical Analysis Indicators for Asset Allocation Decisions

13 Pages Posted: 9 Jan 2021

See all articles by Bryan Foltice

Bryan Foltice

Butler University - Lacy School of Business

Steven D. Dolvin

Butler University

Date Written: April 18, 2020

Abstract

This study analyzes the potential effectiveness of using simple technical analysis indicators to determine the overall riskiness of portfolio asset allocation. Using the 200-day simple moving average of the S&P500 as our technical indicator in two separate strategies, we employ a “risk-on” asset allocation strategy (more portfolio allocation in stocks as a percentage) when the S&P500 is above the indicator line and a “risk-off” strategy (less stock/more bond allocation) when below. We compare the “buy and hold” returns of various portfolio allocations in the U.S. stock and bond markets from 1962-2017. In the initial analysis, we find that following this rule with the 200-day simple moving average provides excess annual returns of up to 0.59%, with all analyzed allocation combinations posting both excess returns and a reduction in overall risk for all analyzed allocation combinations, with all 200-day strategies posting an increase in Sharpe ratios when compared to their baseline “buy-and-hold” strategy.

Keywords: technical analysis, trading strategies, simple moving average

JEL Classification: G11, G02, G14

Suggested Citation

Foltice, Bryan and Dolvin, Steven D., Using Simple Technical Analysis Indicators for Asset Allocation Decisions (April 18, 2020). Available at SSRN: https://ssrn.com/abstract=3732822 or http://dx.doi.org/10.2139/ssrn.3732822

Bryan Foltice (Contact Author)

Butler University - Lacy School of Business ( email )

Indianapolis, IN 46208
United States

Steven D. Dolvin

Butler University ( email )

4600 Sunset Avenue
Indianapolis, IN 46208
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
322
Abstract Views
1,003
Rank
171,698
PlumX Metrics