Are random trading strategies more successful than technical ones?

TL;DR

This study compares the effectiveness of random trading strategies against traditional technical strategies across multiple international stock indexes over 15-20 years, highlighting the potential role of randomness in financial market predictions.

Contribution

It provides an empirical comparison of random versus technical trading strategies, revealing insights into the role of noise and randomness in market prediction success.

Findings

Random strategies perform comparably to technical strategies.

Noise may play a beneficial role in financial market predictions.

Traditional strategies do not always outperform random approaches.

Abstract

In this paper we explore the specific role of randomness in financial markets, inspired by the beneficial role of noise in many physical systems and in previous applications to complex socio- economic systems. After a short introduction, we study the performance of some of the most used trading strategies in predicting the dynamics of financial markets for different international stock exchange indexes, with the goal of comparing them with the performance of a completely random strategy. In this respect, historical data for FTSE-UK, FTSE-MIB, DAX, and S&P500 indexes are taken into account for a period of about 15-20 years (since their creation until today).