Comparison of Four Technical Analysis Indicators: Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), Bollinger Bands, and Stochastic Oscillator

Syahazwani Nurain, Shariman Faizul (2023) Comparison of Four Technical Analysis Indicators: Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), Bollinger Bands, and Stochastic Oscillator. [Final Year Project Report] (Unpublished)

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Abstract

This study aims to analyse the comparison of Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), Bollinger Bands, and Stochastic Oscillator to evaluate their relative effectiveness in predicting stock market trends and facilitating investment decision-making. Given the decline of traditional pension plans and the increased reliance on investing, individuals face greater risk and uncertainty in managing their retirement savings. To address this problem, it is crucial to develop effective investment strategies backed by proper analyses to enhance return on investment (ROI). This study employs a quantitative research design, and the data collection method involves utilising the TradeStation platform, where historical price data of publicly traded companies in the NASDAQ 100 index is accessed directly. The methodology integrates various analytics techniques, including backtesting, optimisation, and walk forward analysis. The findings highlight the MACD indicator's potential for generating profitable trades and the RSI indicator's consistency in identifying profitable trends. Bollinger Bands show promise in capturing significant price movements, while the Stochastic Oscillator exhibits relatively lower performance. The findings revealed valuable insights into the performance and suitability of each indicator, providing practical implications for stock market investors. This study encourages the exploration of indicator combinations, additional technical indicators and different market condition to improve the understanding and application of technical analysis.

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