2022•European Financial ManagementOpen access

Technical analysis: Novel insights on contrarian trading

Patrick Eugster, Matthias Uhl

Abstract

Abstract We analyze the predictive power of technical analysis with a novel data set based on news sentiment that allows to systematically examine a set of technical analysis indicators over an extensive time period. We do not find much statistically significant relationships with the examined indicators and future asset returns, and we almost do not find any alphas in trading strategies based on technical analysis sentiment. We find evidence for a contrarian‐based hypothesis: past market returns and technical analysis sentiment are able to predict future technical analysis sentiment with a negative relationship.

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Key concepts: Contrarian, Technical analysis, Trading strategy, Econometrics, Set (abstract data type), Sentiment analysis, Asset (computer security), Predictive power