Technical analysis using a leading and lagging indicator – backtesting profitability in Malaysian equity market

• Main Author: Murali, Manogaran
• Format: Thesis
• Language: English; English; English; English
• Published: 2020
• Subjects: HJ Public Finance
• Online Access: https://etd.uum.edu.my/10336/1/grant%20the%20permission_s826506.pdf; https://etd.uum.edu.my/10336/2/s826506_01.pdf; https://etd.uum.edu.my/10336/3/s826506_02.pdf; https://etd.uum.edu.my/10336/4/s826506_references.docx; https://etd.uum.edu.my/10336/
• Institution: Universiti Utara Malaysia

The purpose of this research is to examine the efficiency of technical indicators Relative Strength Index (RSI) as leading momentum indicator and Moving Average Convergence Divergence (MACD) as lagging trend following momentum indicator in producing returns in Malaysian equity market (FBMKLCI). The RSI and MACD were analysed individually and later combined together with pre-set conditions applied to provide trading signals to enter and exit the market. The performance of the technical strategies was analysed with Sharpe ratio, percentage of profitability trades and ratio of average profit over average loss. The results shows that RSI, MACD outperformed the buy and hold strategy which was treated as benchmark. Besides, MACD able to outperform RSI with higher net log return with its characteristic of reacting late where it is known as lagging indicator to look backward at the price movements and confirms the trend. The combination of RSI & MACD strategy with modified conditions to enter and exit the market, has strongly outperformed the buy and hold strategy and also when the indicators used individually.