Some implications of the moving average rule usage for portfolio trading

Portfolio trading requires different implementation of strategies than when just a single asset is traded. In this paper, we provide some theoretical motivations for the usage of the moving average rule, one of the most simple as well as popular trading tools among practitioners, as well as its implementation consequences. In particular, we examine the conditional probability of the price increments and we study how this probability changes over time. We find that under some assumptions the probability of up-trend is greater than the probability of down trend. Finally, we compare the ex-post wealth obtained using these trading rules and other portfolio strategies.