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When Support/Resistance Levels are Broken, Can Profits be Made? Evidence from the Foreign Exchange Market

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  • Riccardo Curcio
  • Charles Goodhart

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    Abstract

    (The associated paper is significantly revised and new authors have contributed to it) We investigate on three exchange rate series the profitability of signals generated by the breaking of support and resistance identified and supplied by Chartists. Such profitability is assessed, and then compared to ones obtained with other technical rules. We confirm previous findings that trading range breaks do generate profitable signals, even after the inclusion of transaction costs, and we show that signals generated using Chartists inputs are more frequent and profitable. Supports and resistances may work by warning traders against holding currencies subject to adverse trends.

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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/DP142.pdf
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    Bibliographic Info

    Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp142.

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    Date of creation: Jul 1992
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    Handle: RePEc:fmg:fmgdps:dp142

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    Web page: http://www.lse.ac.uk/fmg/

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    Cited by:
    1. 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.
    2. L. Menkhoff & M. Schlumberger, 1995. "Persistent profitability of technical analysis on foreign exchange markets?," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 48(193), pages 189-215.
    3. L. Menkhoff & M. Schlumberger, 1995. "Persistent profitability of technical analysis on foreign exchange markets?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 48(193), pages 189-215.

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