Is Technical Analysis Profitable? Evidence from Finnish Stock Market

Abstract

This thesis aims to evaluate the performance of technical analysis methods in the Finnish stock market. The predictive power and profitability of technical analysis is a controversial topic among academics and professionals. Despite numerous anomalies, the dominant paradigm in the sphere of finance is the efficient market hypothesis, which states that prices fully reflect all available information in the market. In efficient markets, technical analysis would be useless. In this thesis, the forecasting power and profitability of eight different simple and common technical trading rules is measured in the OMX Helsinki price index data covering the period 2002-2013. The results indicate that technical trading strategies based on signals generated by short-term moving averages and “50 crossover” method of interpreting the relative strength index could generate significant profits during the observation period despite the transaction costs.