This paper conducts an intraday technical analysis of individual stocks listed on the Nikkei 225. In addition to the price-based technical rules popularly examined in the literature, we uniquely propose and statistically investigate technical rules that utilize information regarding (1) the order-flow imbalance and (2) the order-book imbalance. Technical analysis using the imbalance-based trading rules is motivated by the evidence presented first in this paper that short-term returns can be predicted from the information regarding the order-flow and order-book imbalances for more than half of Nikkei 225-listed stocks. However, we demonstrate that no strategies, including limit order trading where trading signals are derived from the order-book imbalance, beat the buy-and-hold strategy within our sample. The results imply that past prices and demand/supply imbalances do not contribute to profiting in intraday trading and that non-execution and picking-off risks are too large for limit order trading to be profitable in our sample.
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