(declines) from the most recent low (high) with x%. A neutral market position is held up to the next buy or sell signal. In total our group of MA rules consists of 2760 trading strategies.

2.3.2  Trading range break-out

Our second group of trading rules consists of trading range break-out (TRB) strategies, also called support-and-resistance strategies. The TRB strategy uses support and resistance levels. If during a certain period of time the price does not fall below (rise beyond) a certain price level, this price level is called a support (resistance) level. According to technical analysts, there is a ``battle between buyers and sellers'' at these price levels. The market buys at the support level after a price decline and sells at the resistance level after a price rise. If the price breaks through the support (resistance) level, an important technical trading signal is generated. The sellers (buyers) have won the ``battle''. At the support (resistance) level the market has become a net seller (buyer). This indicates that the market will move to a subsequent lower (higher) level. The support (resistance) level will change into a resistance (support) level. To implement the TRB strategy, support-and-resistance levels are defined as local minima and maxima of the closing prices. If the price falls (rises) through the local minimum (maximum) a sell (buy) signal is generated and a short (long) position is taken in the market. If the price moves between the local minimum and maximum the position in the market is maintained until there is a new breakthrough. The TRB strategy will also be extended with a %-band filter, a time delay filter, a fixed holding period and a stop-loss. The basic TRB strategy, extended with a %-band filter, is described by
Post+1= 1, if Pt>(1+b) max{Pt-1,Pt-2,...,Pt-n}
Post+1= Post, if (1-b) min{Pt-1,...,Pt-n} ≤ Pt ≤ (1+b) max{Pt-1,...,Pt-n}
Post+1=-1, if Pt<(1-b) min{Pt-1,Pt-2,...,Pt-n}
Our group of TRB strategies consists of 1990 trading strategies.

2.3.3  Filter rule

The final group of trading strategies we test is the group of filter rules, introduced by Alexander (1961). These strategies generate buy (sell) signals if the price rises (falls) by x% from a previous low (high). We implement the filter rule by using a so called moving stop-loss. In an upward trend the stop-loss is placed below the price series. If the price goes up, the stop-loss will go up. If the price declines, the stop-loss will not be changed.
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