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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

    ()

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.

Suggested Citation

  • 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.
  • Handle: RePEc:fmg:fmgdps:dp142
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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/DP142.pdf
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    Cited by:

    1. Neely, C. J. & Weller, P. A., 2003. "Intraday technical trading in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 223-237, April.
    2. Lukas Menkhoff & Mark P. Taylor, 2007. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 936-972, December.
    3. 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.
    4. 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.
    5. Mitchell, Jason & Izan, H.Y., 2006. "Clustering and psychological barriers in exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(4), pages 318-344, October.

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