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Intraday technical trading in the foreign exchange market

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  • Christopher J. Neely
  • Paul A. Weller

Abstract

This paper examines the out-of-sample performance of intraday technical trading strategies selected using two methodologies, a genetic program and an optimized linear forecasting model. When realistic transaction costs and trading hours are taken into account, we find no evidence of excess returns to the trading rules derived with either methodology. Thus, our results are consistent with market efficiency. We do, however, find that the trading rules discover some remarkably stable patterns in the data.

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File URL: http://research.stlouisfed.org/wp/more/1999-016
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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1999-016.

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Date of creation: 2001
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Publication status: Published in Journal of International Money and Finance, 2003, 22(2), pp. 223-237
Handle: RePEc:fip:fedlwp:1999-016

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Keywords: Foreign exchange;

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References

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  1. Ramazan GenÁay & Giuseppe Ballocchi & Michel Dacorogna & Richard Olsen & Olivier Pictet, 2002. "Real-Time Trading Models and the Statistical Properties of Foreign Exchange Rates," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 463-492, May.
  2. Goodhart, C. A. E. & Figliuoli, L., 1991. "Every minute counts in financial markets," Journal of International Money and Finance, Elsevier, vol. 10(1), pages 23-52, March.
  3. Christopher J. Neely & Paul A. Weller & Robert Dittmar, 1997. "Is technical analysis in the foreign exchange market profitable? a genetic programming approach," Working Papers 1996-006, Federal Reserve Bank of St. Louis.
  4. Christopher Neely & Paul Weller, 2000. "Technical analysis and central bank intervention," Working Papers 1997-002, Federal Reserve Bank of St. Louis.
  5. Levich, Richard M. & Thomas, Lee III, 1993. "The significance of technical trading-rule profits in the foreign exchange market: a bootstrap approach," Journal of International Money and Finance, Elsevier, vol. 12(5), pages 451-474, October.
  6. Zhou, Bin, 1996. "High-Frequency Data and Volatility in Foreign-Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 45-52, January.
  7. Curcio, Riccardo, et al, 1997. "Do Technical Trading Rules Generate Profits? Conclusions from the Intra-day Foreign Exchange Market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(4), pages 267-80, October.
  8. Mark J Ready, 2002. "Profits from Technical Trading Rules," Financial Management, Financial Management Association, vol. 31(3), Fall.
  9. Ian Marsh & Menzie Chinn & Yin-Wong Cheung, 1999. "How do UK-Based Foreign Exchange Dealers Think Their Market Operates?," Working Papers wp99-21, Warwick Business School, Finance Group.
  10. Taylor, Mark P. & Allen, Helen, 1992. "The use of technical analysis in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 11(3), pages 304-314, June.
  11. Paul Weller & Christopher Neely, 1999. "Intraday Technical Trading in the Foreign Exchange Market," Working Papers wp99-02, Warwick Business School, Finance Group.
  12. Yin-Wong Cheung & Menzie D. Chinn, 1999. "Macroeconomic Implications of the Beliefs and Behavior of Foreign Exchange Traders," NBER Working Papers 7417, National Bureau of Economic Research, Inc.
  13. Chang, P H Kevin & Osler, Carol L, 1999. "Methodical Madness: Technical Analysis and the Irrationality of Exchange-Rate Forecasts," Economic Journal, Royal Economic Society, vol. 109(458), pages 636-61, October.
  14. Carol Osler, 2000. "Support for resistance: technical analysis and intraday exchange rates," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 53-68.
  15. Baillie, Richard T & Bollerslev, Tim, 1991. "Intra-day and Inter-market Volatility in Foreign Exchange Rates," Review of Economic Studies, Wiley Blackwell, vol. 58(3), pages 565-85, May.
  16. Andrew W. Lo & Craig A. MacKinlay, . "An Econometric Analysis of Nonsyschronous-Trading," Rodney L. White Center for Financial Research Working Papers 19-89, Wharton School Rodney L. White Center for Financial Research.
  17. repec:fth:pennfi:70 is not listed on IDEAS
  18. Brock, W. & Lakonishok, J. & Lebaron, B., 1991. "Simple Technical Trading Rules And The Stochastic Properties Of Stock Returns," Working papers 90-22, Wisconsin Madison - Social Systems.
  19. Jon Danielsson & Richard Payne, 1999. "Real Trading Patterns and Prices in Spot Foreign Exchange Markets," FMG Discussion Papers dp320, Financial Markets Group.
  20. Christopher Neely & Paul Weller, 1998. "Technical trading rules in the European Monetary System," Working Papers 1997-015, Federal Reserve Bank of St. Louis.
  21. Yin-Wong Cheung & Menzie D. Chinn, 2000. "Currency Traders and Exchange Rate Dynamics: A Survey of the U.S. Market," CESifo Working Paper Series 251, CESifo Group Munich.
  22. Goodhart, Charles A. E. & O'Hara, Maureen, 1997. "High frequency data in financial markets: Issues and applications," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 73-114, June.
  23. Sweeney, Richard J, 1986. " Beating the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 41(1), pages 163-82, March.
  24. Riccardo Curcio & Charles Goodhart, 1992. "When Support/Resistance Levels are Broken, Can Profits be Made? Evidence from the Foreign Exchange Market," FMG Discussion Papers dp142, Financial Markets Group.
  25. Lyons, Richard K., 1998. "Profits and position control: a week of FX dealing1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 97-115, February.
  26. Bollerslev, Tim & Domowitz, Ian, 1993. " Trading Patterns and Prices in the Interbank Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 48(4), pages 1421-43, September.
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