AgPa #26: Trading on Price Charts

(Re-)Imag(in)ing Price Trends (2022)
Jingwen Jiang, Bryan T. Kelly, Dacheng Xiu
The Journal of Finance, Forthcoming, URL

This week’s AGNOSTIC Paper is about technical analysis. Full disclosure: I never believed in technical analysis in the sense of drawing lines on charts or imagining somewhat arbitrary patterns.

But the approach of this week’s authors is quite different. They borrow methodology from image recognition and train a machine learning model to detect predictive patterns in price charts (Yes, the machine receives the price chart as picture, not the underlying numbers!)…

  • The model identifies very profitable short-term signals
  • The signals are also profitable over longer horizons
  • Some of the machine-learning-signals are explainable
  • The model disagrees with conventional technical analysis

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