Designing Trading Strategies Based on Momentum & Reversal Effect, Using Stock’s Major Historical Highs and Lows

Investors and traders in financial markets, use fundamental analysis, technical analysis or their combination to achieve abnormal returns and beat the market. In recent decades, although numerous researches are done to assess the usefulness of technical analysis methods, a large number of techniques that are more subjective and abstract and hard to quantify, are left out.In this research, based on previous studies that have shown momentum effect in stock returns in the short-term and reversal effect in stock returns in the long-term, and by using stock’s major historical highs and lows, that are systematically and directly identified through price charts, three trading strategies are developed and designed and after being implemented in 226 stocks in the Tehran stock exchange over the six year period of 1390 to 1395, results indicates that the returns of all three designed trading strategies, in gerenal, are considerably higher than buy and hold strategy.