Technical Trading Revisited: Persistence Tests, Transaction Costs, And False Discoveries

The authors revisit the apparent historical success of technical trading rules on daily prices of the Dow Jones index. Rules selected before transaction costs trade too frequently and their performance is wiped out by the inclusion of these costs. The absence of performance persistence indicates that a trader would not have been able to select the future best-performing rules. Throughout their paper, they use the False Discovery Rate as a new approach to data snooping issues when testing several models simultaneously.