The input to the system is the time series of the securities with weekly frequency. This input enters the technical indicators module, which calculates from each time series, the four technical indicators, namely MACD, RSI, CCI and Bollinger Bands. Following expert knowledge regarding these technical indicators, the MACD indicator looks for bullish and bearish market movements and is a lagging indicator. The RSI indicator belongs to the category of oscillators, and it seeks the security price momentum. The CCI does not make any up or down trend recommendation, but quantifies how strong the current trend is, either going up or down. The Bollinger bands compare the volatility with the price levels.
The parameters for the technical indicators are specified according to the default guidelines in technical analysis. For the MACD indicator, 26 and 12 weeks are used as the long-term and the short-term moving average, respectively. The trigger line for the MACD is the 9 weeks moving average of the MACD. The RSI indicator uses a period of 20 weeks. Similarly, the CCI indicator uses a 20 week period and c = 0:015. The Bollinger bands are calculated using a 20 week moving average for the middle band and a constant of 2¾ for the upper and lower bands, respectively. The outputs of the Bollinger band consist of three series, namely that of the middle, lower and upper bands, while the other tectechnical indicators produce only one output. Table1 summarises the parameters used in the technical indicators module.
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