Contrarian Technical Trading Rules: Evidence From Nairobi Stock Index

We apply several popular technical trading rules in the normal way and a contrarian way to daily data of the Nairobi Stock Index from 9/12/2006 to 4/18/2013. The contrarian usage of popular technical trading rules implies that when a technical trading indicator emits buy (sell) signals, we do the opposite and sell (buy) the index. Results from the study support the predictive power of contrarian technical trading rules. We also investigate whether a trader can use the predictive power of contrarian technical rules to beat the profitability of the buy-and-hold strategy considering both transaction costs and risk. Designing four strategies of various contrarian trading rules, we conclude that it is possible to beat the buy-and-hold strategy even considering transaction costs and risk.

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