Late last year, Marco Lissandrin ETH Zurich, Donnacha Daly ETH Zurich and Didier Sornette Swiss Finance Institute; ETH Zürich – Department of Management, Technology, and Economics (D-MTEC) published a research piece of great importance to us fans of the work of Tom DeMark. They examined the performance of three of DeMark indicators (TD Sequential, TD Combo and TD Setup Trend), which constitute specific implementations of Technical Analysis often used by practitioners, over 21 commodity futures markets and 10 years of data.
Their backtests characterise the predictive power of these indicators. Market entry signals were tested by comparing conditional returns (i.e. conditioned on the entry signals) to unconditional returns. For the analysis of trades, which also comprise market-exit signals, randomization tests were performed for benchmarking. They generated the distributions of three performance metrics (mean return, profit factor and risk-return ratio) over different trade holding horizons and compared them with their randomized versions. They further checked the impact of the rolling strategy of futures contracts on the performance of the DeMark indicators.
Briefly their studious conclusion was, “For the period from Jan. 2004 to Jan. 2014, our results suggest statistically significant predictive power on a wide range of commodity futures.” We knew this but now we have academic support for our confidence in the work of The Master.
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Download research here