From efficient market theory we know that there is no such a thing as a free lunch. If you want higher returns then you also have to take on higher risk. The critical question technical analysis has to answer therefore becomes, does technical analysis (TA) provide an investor with an edge in the stock market? To answer this question empirically data was investigated for the Standard and Poor’s-500 Index for a twenty years time period from 1986 to 2006.

Two different portfolios were constructed. The portfolios were named Hugin with a high time resolution a Munin with a lower time resolution. A simple 30 period MA cross strategy with optimized stop-losses were tested on the two portfolios. The stop-losses were optimized on the first ten years 1986-1996 in order to make the backtesting more realistic.

The conclusion was that neither Hugin nor did Munin produce abnormal returns without the optimized stop losses. When the stop losses were optimized, Hugin but not Munin provided an investor with slightly better return than a long position. However Hugin’s returns were highly sensitive to the assumed level of price slippage and transaction costs. The conclusion to be drawn is therefore that investing based only on a simple 30 periods moving average crossover investment strategy seams not to be the best way to manage hard-earned money.