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Are technical trading rules profitable? Evidence for head-and-shoulder rules

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Bernd Lucke

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Abstract

The profitability of chartist trading rules on foreign exchange markets is still under debate. Since simple technical trading rules may not adequately capture the complex phenomenon of chartist trading, this study focuses on the prominent head-and-shoulder pattern as a representative trading rule which incorporates various 'technical' ideas such as smoothed trends, trend reversal, resistance levels, and volatility clustering. For various combinations of the building blocks of head-and-shoulder definitions the result is generally negative: Returns to head-and-shoulder trading rules are not significantly positive - and if there is any evidence for non-zero returns at all, then it is evidence for negative returns.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 35 (2003)
Issue (Month): 1 (January)
Pages: 33-40
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Handle: RePEc:taf:applec:v:35:y:2003:i:1:p:33-40

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cornell, W Bradford & Dietrich, J Kimball, 1978. "The Efficiency of the Market for Foreign Exchange under Floating Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 60(1), pages 111-20, February. [Downloadable!] (restricted)
  2. Blake LeBaron, 1994. "Technical Trading Rule Profitability and Foreign Exchange Intervention," International Finance 9411002, EconWPA. [Downloadable!]
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  3. King, Robert G. & Plosser, Charles I., 1994. "Real business cycles and the test of the Adelmans," Journal of Monetary Economics, Elsevier, vol. 33(2), pages 405-438, April. [Downloadable!] (restricted)
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  4. Dittmar, Robert & Neely, Christopher J & Weller, Paul, 1996. "Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach," CEPR Discussion Papers 1480, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Szakmary, Andrew C. & Mathur, Ike, 1997. "Central bank intervention and trading rule profits in foreign exchange markets," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 513-535, August. [Downloadable!] (restricted)
  6. C.L. Osler & P.H. Kevin Chang, 1995. "Head and shoulders: not just a flaky pattern," Staff Reports 4, Federal Reserve Bank of New York. [Downloadable!]
  7. LeBaron, Blake, 1999. "Technical trading rule profitability and foreign exchange intervention," Journal of International Economics, Elsevier, vol. 49(1), pages 125-143, October. [Downloadable!] (restricted)
  8. Blake LeBaron, . "Technical Trading Rules and Regime Shifts in Foreign Exchange," Working papers _007, University of Wisconsin - Madison. [Downloadable!]
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  1. Menkhoff, Lukas & Taylor, Mark P., 2006. "The Obstinate Passion of Foreign Exchange Professionals : Technical Analysis," The Warwick Economics Research Paper Series (TWERPS) 769, University of Warwick, Department of Economics. [Downloadable!]
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  2. Menkhoff, Lukas & Schmidt, Ulrich, 2005. "The Use of Trading Strategies by Fund Managers: Some First Survey Evidence," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-314, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
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  3. Yung-Ho Chang & Massoud Metghalchi & Chia-Chung Chan, 2006. "Technical trading strategies and cross-national information linkage: the case of Taiwan stock market," Applied Financial Economics, Taylor and Francis Journals, vol. 16(10), pages 731-743, June. [Downloadable!] (restricted)
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