Charting Technical Trading Rules and the Lottery of Technical Analysis: Empirical Evidence from Foreign Exchange Market
AbstractWe use trend-following, trend continuation and trend reversal pattern recognition techniques to apply technical charting rules to trading seven major currency pairs for the period of 1999 through early 2007. Our results suggest that the persistent popularity of technical analysis among practicing traders may be the result of a “lottery” wherein most of the participants end up with zero profits. However, the rest of the participants are much more likely to end up winning rather than losing. In this way, the popularity of technical trading rules may co-exist with the validity of market efficiency hypothesis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 7849.
Date of creation: Feb 2008
Date of revision:
market efficiency; technical analysis; forecasting; foreign exchange markets;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-25 (All new papers)
- NEP-IFN-2008-03-25 (International Finance)
- NEP-MST-2008-03-25 (Market Microstructure)
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.:
- De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, American Finance Association, vol. 40(3), pages 793-805, July.
- Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, American Finance Association, vol. 48(1), pages 65-91, March.
- Levin, Jay H, 1997. "Chartists, Fundamentalists and Exchange Rate Dynamics," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 2(4), pages 281-90, October.
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, American Finance Association, vol. 25(2), pages 383-417, May.
- Reitz, Stefan, 2006. "On the predictive content of technical analysis," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 17(2), pages 121-137, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.