Market ecologies: The effect of information on the interaction and profitability of technical trading strategies |
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| Institution: | 1. School of Economics, University of East Anglia, United Kingdom;2. Department of Economics, University of Leicester, United Kingdom;1. Tuvinian Institute for Exploration of Natural Resources, Siberian Branch of the Russian Academy of Sciences, ul. Internatsional’naya 117a, Kyzyl, Tyva Republic, 667007, Russia;2. Institute of Mineralogy, Uralian Branch of the Russian Academy of Sciences, Miass, Chelyabinsk Region, 456317, Russia;1. School of Computing Engineering and Mathematics, University of Brighton, Brighton, UK;2. Department of Business and Management Science, Norwegian School of Economics, Bergen, Norway;3. Universidad Pontificia Comillas, Madrid, Spain;1. Cass Business School, City, University of London, UK;2. Future of Humanity Institute, University of Oxford, Oxford, UK;3. Department of Computer Science, George Mason University, VA, USA |
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| Abstract: | Technical trading strategies make profits by identifying and exploiting patterns in market prices—patterns generated by the interaction of market participants. Using a model market populated by individuals using a range of trading rules we show that the presence of technical traders may be beneficial, in some cases reducing volatility and increasing price efficiency. In particular, contrarian traders who base their decisions on high frequency data have the largest positive effect. It is also found that if technical traders condition their actions using ‘real time’ information, they partially emulate arbitrageurs and make positive profits. |
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