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The predictive success and profitability of chart patterns in the Euro/Dollar foreign exchange market

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  • BEN OMRANE, Walid
  • VAN OPPEN, Hervé

Abstract

We investigate the existence of chart patterns in the Euro/Dollar intra-daily foreign exchange market. We use two identification methods of the different chart patterns: one built on close prices only, and one based on low and high prices. We look for twelve types of chart patterns and we study the detected patterns through two criteria : predictability and profitability. We run a Monte Carlo simulation to compute the statistical significance of the obtained results. We find an apparent existence of some chart patterns in the currency market. More than one half of detected charts present a significant predictability. Nevertheless, only two chart patterns imply a significant profitability which is however too small to cover the transaction costs. The second extrema detection method provides higher but riskier profits than the first one.

Suggested Citation

  • BEN OMRANE, Walid & VAN OPPEN, Hervé, 2004. "The predictive success and profitability of chart patterns in the Euro/Dollar foreign exchange market," CORE Discussion Papers 2004035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2004035
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    References listed on IDEAS

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    Cited by:

    1. Petr Zeman, 2014. "Technical Trading and Testing of Intra-day Market Efficiency in the Foreign Exchange Market," Acta Universitatis Bohemiae Meridionales, University of South Bohemia in Ceske Budejovice, vol. 17(1), pages 3-13.

    More about this item

    Keywords

    foreign exchange market; chart patterns; high frequency data; technical analysis;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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