Efficiency of Momentum Trading Strategies by Using Technical Analysis Tools

A Case Study of sSET Index (Stock Exchange of Thailand)

Abstract

This study examined efficiency of momentum trading, using technical analysis tools such as simple moving average and relative strength index to generate investment strategy. The case from sSET index of the Stock Exchange of Thailand was used for study, from 1 January 2017 to 31 December 2020, for four years in total. The daily data was used in the experiment to compare Momentum Trading with the buy-and-hold strategy. The data was divided into two sets: In-sample (data between 1 January 2017 and 31 September 2018) and out-of-sample (data between 1 January 2019 and 31 December 2020).

Examination of the in-sample data revealed that the momentum trading approach yielded cumulative returns of 90.38%, outstripping the buy-and-hold (-36.07%). The Sharpe ratio was 2.26, better than the buy-and-hold approach (-1.41). Maximum Drawdown was -7.32%, better than the buy-and-hold approach (-36.07%). Result from the out-of-sample data revealed that momentum trading yielded cumulative returns of 42.66%, superior than the buy-and-hold strategy (-3.73%). The Sharpe ratio was 0.99, better than the buy-and-hold approach (-0.02). Maximum Drawdown was -17.55%, better than the buy-and-hold approach (-50.96%). The experiment showed that the momentum trading approach was superior to the buy-and-hold approach both for in-sample and out-of-sample data.