Technical Trading Revisited: Persistence Tests, Transaction Costs, and False Discoveries

We revisit the apparent historical success of technical trading rules on daily prices of the Dow Jones index. First, we use the False Discovery Rate as a new approach to data snooping. The advantage of the FDR over existing methods is that it is more powerful and not restricted only to the best rule in the sample. Second, we perform persistence tests and conclude that an investor would not have been able to select ex ante thefuture best-performing rules. Finally, we show that the performance fully disappears once transaction costs are taken into account.