Mixed Strategy for Trading Financial Security

Abstract

Strategies for trading financial security usually divided into three classes. They are fundamental, technical and quantitative analysis. Fundamental analysis evaluate the intrinsic price, but even through a perfect model is presented, it requires the market to adjust to the desired value and this could be irrationally long. Technical analysis tries to look for certain patterns of price movement. This class of analysis is large and widely used, but the accuracy of some of them is suspected. Quantitative analysis means to model financial quantities as random and apply statistical tools to it. The criticism of this is that it usually assumes the rate change of price is normally distributed. However, this may not be the case. In this project, some techniques are individually tested. Also a mixed strategy of these three analyses is proposed and tested on past Hong Kong equity market. Despite of the weakness of these three analyses, we can take advantages of their strengths.