question whether the profits generated by technical trading rule signals were not just the reward of bearing risky asset positions.
Levy (1967) applies relative strength as a criterion for investment selection to weekly closing prices of 200 stocks listed on the NYSE for the 260-week period beginning October 24, 1960 and ending October 15, 1965. All price series are adjusted for splits, stock dividends, and for the reinvestment of both cash dividends and proceeds received from the sale of rights. The relative strength strategy buys those stocks that have performed well in the past. Levy (1967) concludes that the profits attainable by purchasing the historically strongest stocks are superior to the profits of the random walk. Thus in contrast to earlier results he finds stock market prices to be forecastable by using the relative strength rule. However Levy (1967) notices that the random walk hypothesis is not refuted by these findings, because superior profits could be attributable to the incurrence of extraordinary risk and he remarks that it is therefore necessary to determine the riskiness of the various technical measures he tested.
Jensen (1967) indicates that the results of Levy (1967) could be the result of selection bias. Technical trading rules that performed well in the past get most attention by researchers, and if they are back-tested, then of course they generate good results. Jensen and Benington (1969) apply the relative strength procedure of Levy (1967) to monthly closing prices of every security traded on the NYSE over the period January 1926 to March 1966, in total 1952 securities. They conclude that after allowance for transaction costs and correction for risk the trading rules did not on average earn significantly more than the buy-and-hold policy.
James (1968) is one of the firsts who tests moving-average trading strategies. That is, signals are generated by a crossing of the price through a moving average of past prices. He finds no superior performance for these rules when applied to end of month data of stocks traded at the NYSE in the period 1926-1960.