IRTG1792DP2018 045
Predicative Ability of Similarity-based Futures Trading Strategies
Hsin-Yu Chiu
Mi-Hsiu Chiang
Wei-Yu Kuo
Abstract
A trading rule that draws on the empirical similarity concept is proposed to simulate the
technical trading mentality|one that selectively perceives structural resemblances between
market scenarios of the present and the past. In more than half of the nineteen futures
markets that we test against for protability of this similarity-based trading rule, we nd
evidence of predictive ability that is robust to data-snooping and transaction-cost adjust-
ments. When aided by an exit strategy that liquidates the trader's positions across some
evenly-spaced time points, this rule generates the most robust returns.
Keywords:
empirical similarity; technical trading; futures markets; analogical reasoning
JEL Classification:
G11, G12