Using Bollinger Bands and Stochastic Oscillators as a Trading Strategy for Large Cap Stocks

Abstract

The purpose of this paper is to examine the use of technical analysis in the US equities market. Stochastic Oscillators and Bollinger Bands are both momentum metrics that use historical prices to predict the future movement of a stock price. This paper aims to prove the effectiveness of using these two metrics in a trading strategy and therefore the feasibility of exclusively using technical analysis to trade large cap equities from 2012 to 2014. The combined metrics will reduce exposure to the stock market while attempting to identify superior times to enter into positions that will exceed the average return of each equity. This paper runs additional scenarios to further understand the results and modify the combined trading strategy to improve the results and find the best use of Bollinger Bands and Stochastic Oscillators as a trading strategy for large cap stocks from 2012 to 2014.