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2022 | OriginalPaper | Chapter

7. On the Effectiveness of Technical Indicators in Digital Assets

Author : Tobias Glas

Published in: Asset Pricing and Investment Styles in Digital Assets

Publisher: Springer International Publishing

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Abstract

A controversial approach in the finance literature is the application of technical indicators or technical analysis in general. Practitioners rely heavily on such tools, but research has not yet agreed on a final conclusion regarding their effectiveness. Technical analysis makes predictions of future prices of an asset based on the past performance information. Therefore, it can be regarded a time-series instrument. On the other hand, with hundreds of investable digital assets, it is still difficult to obtain two things. It is almost impossible to determine (i) the “fair” value of a digital asset, and consequently (ii) an asset selection based on fundamental data (compared to equities) is not applicable. As such, it is even more important to generate buy and sell decisions through other methods.

Generally, technical indicators are used for exactly such decisions. Depending on the indicator’s specific value, buy and sell decisions can be derived and tested in digital assets.

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previous chapter Digital Assets in a Multi-asset Context

next chapter Investment Styles in Digital Assets

Please refer to Sects. 5.2 and 5.3 for more information.

Other technical indicators were not mentioned or taken into account by this survey, or by Ciana (2011).

See “Unified fee schedule,” https://www.bitstamp.net/fee_schedule/, accessed on May 30, 2018.

The results are reported below.

The values described in the text below are taken from analysis not including transaction costs.

The success rate of the buy-and-hold strategy in digital assets already shows that only 36.64% of the whole universe achieve positive cumulative returns. That translates into almost two thirds of digital assets losing value.

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Title: On the Effectiveness of Technical Indicators in Digital Assets
Author: Tobias Glas
Publisher: Springer International Publishing
Book: Asset Pricing and Investment Styles in Digital Assets
Print ISBN: 978-3-030-95694-3

Electronic ISBN: 978-3-030-95695-0

Copyright Year: 2022
DOI: https://doi.org/10.1007/978-3-030-95695-0_7