Decision Making Based on Moving Average Convergence-Divergence: A Volatility Analysis

Abstract

This study analyses the growing movement of investors leaving fixed income and moving to the variable income market, many of them use simple techniques such as Moving Average Convergence-Divergence (MACD) and sometimes choose assets with little volatility because, empirically, they see  them as “safer”. The purpose of the study is to estimate the relationship between the level of an asset's volatility and the efficiency of the MACD instrument. To achieve the objective, a descriptive analysis was performed - with a documentary collection, and quantitative analysis - through Analysis of Variance (ANOVA). We searched for companies that make up a given stock exchange index, dividing them into two groups: the 20% more volatile and the 20% less volatile. Simulations of purchases and sales were carried out to identify the returns obtained. It is possible to identify that the group of the most volatile assets obtained results - profit - exponentially better than the other, thus achieving the theoretical and empirical contribution of the technical rules of trading, especially via graphical analysis and use of the MACD instrument. Above all, it proved that the relationship has predictive capacity in Brazil. The results of the study support the use of techniques, which promote surplus returns in a practical way for investors. Evidence was found of the existence of a relationship between the intensity of volatility and the efficiency of the MACD. The study implies demonstrating the investment strategy of using volatility as a moderator of the efficiency of graphical analysis.