Comparison of technical analysis strategies with buy and hold method for buying stocks

Dissertation for Master's degree (M.A)

Trend: Accounting

Dissertation abstract (including summary, objectives, implementation methods and results obtained):

In this research, the efficiency of stock purchase methods using technical strategies compared to the purchase and maintenance method was investigated. The tested technical strategies are exponential moving average, movement size strength index, and the combined strategy of movement size strength index and exponential moving average. Purchase positions created based on daily (short-term) and weekly (medium-term) periods were extracted for 16 investment companies in the Tehran Stock Exchange in three years from 2010 to 2012. The obtained data have been compared with the purchase and maintenance method for the annual, two-year and three-year periods of 1390-1392. The result shows that in periods when the market is strongly bullish (year 2012), technical strategies are not effective, but in periods when the market trend is balanced, technical strategies are more efficient for buying stocks. Also, if the purchase is made at the beginning of 2010 and the sale is made at the end of 2012 (3-year period); There is no significant difference between the return of technical strategies and buying and holding.

Key words: technical analysis, investment strategies, moving averages, movement size strength index, buying and holding method

1-1 Introduction

Investors and investment managers are faced with a decision process when choosing and buying company stocks. In this process, they seek to choose stocks that have maximum benefits. Basically, when buying shares, the investor pays attention to two factors in addition to the risk:

A) the profit during the period in which he owns the share (annual yield);

B) the sale value of the share in the future periods (future value of the asset).

These two factors are hidden in the return criterion, which can be measured by calculating its amount during the investment period of the profit. If the investor can choose a stock that maximizes the above two values ??according to the acceptable risk, his choice and decision will be optimal, which is the main goal of stock analysis discussion (Sataish et al. 2018)

In the investment process, success and earning profit is not possible without correct analysis and familiarity with stock and market conditions, so every investor should buy and sell stocks after examining and analyzing them. In general, there are three types of fundamental analysis, technical and new portfolio theories in the stock market. In fundamental analysis, attention is paid to the intrinsic value of stocks, in technical analysis, it predicts stock prices according to the past trend of stock prices, and in modern portfolio theories, in order to reduce unsystematic risk, diversification and creation of stock portfolios are done. 

Studies conducted in investment companies and investment managers of these companies, as the largest investor institutions in the country, show that the stock prices of these companies are not completely derived from their investment portfolios, but mass discussion has been observed in these companies, and for their buying and selling, analyzes beyond portfolio review are needed.

Almost no research has been done regarding technical analysis for investment companies. is They state that the reason for this is that the stock prices of these companies originate from other investing companies, but this does not mean that these companies cannot be analyzed using technical analysis. One of the characteristics that makes it possible to analyze a company using technical analysis is the volume of transactions, which most of the investment companies of the Tehran Stock Exchange have this characteristic. For this purpose, in this research, the technical analysis of the investment companies of the Tehran Stock Exchange will be discussed. 2-1 The importance of the research topic and the motivation for choosing it. The beginning of the movement to rebuild and reform the country's economic system has brought about changes in the capital market. And the most effective methods of offering shares in the privatization process have been emphasized by financial experts.On the other hand, one of the primary necessities of market development is to modify the mechanism and information policies of the stock market, and various writings of investment literature emphasize the role of information in the investment process and how to analyze this information, so it plays a very effective role in investment decisions, and investors will get more details about stocks by using this information. But considering that obtaining information is costly (both financially and time-wise), the investor must determine a framework and collect information within this framework. Therefore, identifying and formulating the appropriate framework has effectively helped the integration of the information system of the stock market, and in the current situation, the introduction of stock analysis methods and tools is considered as a fundamental and important issue. Therefore, conducting research in this field while expanding the investment culture will provide tools for analysis to Iranian investors.

This research is aimed at helping investors make decisions to carry out transactions on the ordinary shares of investment companies in the Tehran Stock Exchange and can be considered a good guide for investors to make the best possible decisions. The use of technical buying methods using moving average strategies in short-term, medium-term periods. and compare the efficiency of using this method with the efficiency of buying and holding stocks so that it can be decided whether the moving average methods are more efficient than the maintenance method or not?

Examining the efficiency of buying shares of investment companies using the movement size strength index and comparing it with the methods of buying and holding in the stock exchange.

4-1 research hypotheses

First hypothesis: using the moving average method to buy stocks is more efficient than the buy and hold method.

First sub-hypothesis: The moving average method (EMA) is more efficient for buying stocks in the short term than the method of buying and holding in the short term.

Second sub-hypothesis: the moving average method to buy stocks in the medium term duration is more efficient than the buy and hold method in the medium term.

The second hypothesis: using the RSI method to buy stocks is more efficient than the buy and hold method.

The first sub-hypothesis: The method of the movement size index is more efficient for buying stocks in the short term than the buy and hold method in the short term. It is more efficient than buying and holding method in the medium term. Third hypothesis: Using the combined method of moving average and movement size index to buy stocks is more efficient than the buying and holding method. First sub-hypothesis: The combined method of moving average and movement size index is more efficient for buying stocks in short-term returns than the method of buying and holding in the short term. Second sub-hypothesis: The combined method of moving average and movement size index is more efficient for buying stocks in The medium-term return is more efficient than the buy-and-hold method in the medium term.

5-1 Statistical population and its size

The statistical population of the current research consists of the companies in the investment industry of Tehran Stock Exchange that are present from the beginning of 2010 to the end of 2012.

The investment industry of the stock exchange is divided into two sectors, other financial intermediaries and investments, which are in total society There are 27 companies. Also, investment companies in other industries of the stock exchange are also added to this collection, and a total of 36 companies form the statistical community of this research.