Impact of Using Short-Term Trading Strategies on Securities’ Returns: Evidence from Djia Securities Market

Abstract

The purpose of this study was to analyze short-term trend following trading strategies to understand their impact on returns of securities trading at the Dow Jones Industrial Average (DJIA). It achieved the objectives by analyzing the impact of momentum and moving average strategies, as well as a combined alpha strategy, and then comparing their returns with the market returns and buy-and-hold returns. Recently, scholars have questioned the consistency of the efficient market hypothesis after the claims of superior returns emerged. Publications have shown both agreement and disagreement with the concept of delivering abnormal returns by traders and other participants. While the Efficient Market Hypothesis asserts no one can beat the market by utilizing technical or fundamental analysis, empirical results of technical traders have shown it is possible to deliver superior returns. In view of these conflicting claims, empirical research in a well-developed securities market like the Dow Jones Industrial Average (DJIA) was useful in assessing the returns of securities. A quantitative research methodology was adopted in this study, together with an experimental research design. Historical price and volume data from Yahoo Finance for the Dow Jones Industrial Average as the market index, and its constituent stocks as equity data were used. One stock was randomly picked from each strata (high vs low performing stocks), making a total of 2 stocks selected to be studied. Specifically, Cisco (CSCO) (high performing) and Walgreens Boots Alliance Inc (WBA) (low performing) data for a period of two years was studied. The beginning period was set 2 years from the date of the analysis (August 2023 to August 2025). The downloaded data was analyzed using Python 3.12.7 using Jupyter Notebook. From the empirical results, the momentum strategy can consistently deliver better returns than the market (CSCO 32.46% and WBA 49.95% vs the DJIA Market 12.32%). Moving averages did not deliver better returns than the market (CSCO 5.07% and WBA -1.10%, vs DJIA Market 12.32%). Combined strategy showed mixed results (CSCO 9.56%, 42.75% vs DJIA Market 12.32%). The Efficiency Market Hypothesis does not hold true for all the securities tested. The DJIA market exhibited a weak form of efficiency. Trend following strategies have been shown to have the power to assist the trader in entering and exiting trades at the right time and generate superior returns. Combining these two strategies gives the trader a chance to choose the best-performing one at that particular time. Using the right signals in short-term trading can be profitable both in the bullish and the bearish markets. The researcher recommended the use of active portfolio management strategies such as technical analysis to maximize returns for investors and create more wealth. Use of predictive computing techniques such as machine learning is highly recommended to consistently beat the market as trading data and methods become more complex.