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Technical Analysis On Foreign Exchange: 1975 - 2004

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  • Fernando Rubio

    (FERNCAPITAL S.A.)

Abstract

The aim of this paper is to determine the potential profitability of technical analysis applied on the foreign exchange market. Eight simple rules of trading are tested in five markets. Only long positions are tracked and reported. When neither commissions nor indexation are included in the analysis, some investment strategies outperform the index. There is little evidence that these excess returns are compensation for bearing excessive risk. However, the most of these strategies require too many transactions and produces only marginal returns. In that sense, when commissions and indexation are introduced, it is concluded that only an investor with the ability to get very low or null commissions and taxes would benefit.

Suggested Citation

  • Fernando Rubio, 2004. "Technical Analysis On Foreign Exchange: 1975 - 2004," Finance 0405033, EconWPA, revised 01 Jul 2004.
  • Handle: RePEc:wpa:wuwpfi:0405033 Note: Type of Document - pdf; pages: 11
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    File URL: http://econwpa.repec.org/eps/fin/papers/0405/0405033.pdf
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    References listed on IDEAS

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    1. Sweeney, Richard J, 1986. " Beating the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 41(1), pages 163-182, March.
    2. Yin-Wong Cheung & Menzie D. Chinn & Ian W. Marsh, 2004. "How do UK-based foreign exchange dealers think their market operates?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 289-306.
    3. Christopher J. Neely, 1997. "Technical analysis in the foreign exchange market: a layman's guide," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 23-38.
    4. Ryan Sullivan & Allan Timmermann & Halbert White, 1999. "Data-Snooping, Technical Trading Rule Performance, and the Bootstrap," Journal of Finance, American Finance Association, vol. 54(5), pages 1647-1691, October.
    5. LeBaron, Blake, 1999. "Technical trading rule profitability and foreign exchange intervention," Journal of International Economics, Elsevier, vol. 49(1), pages 125-143, October.
    6. Neely, Christopher J. & Weller, Paul A., 2001. "Technical analysis and central bank intervention," Journal of International Money and Finance, Elsevier, vol. 20(7), pages 949-970, December.
    7. Tiffany Hutcheson, 2000. "Trading in the Australian Foreign Exchange Market," Working Paper Series 107, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    8. Cheung, Yin-Wong & Chinn, Menzie David, 2001. "Currency traders and exchange rate dynamics: a survey of the US market," Journal of International Money and Finance, Elsevier, vol. 20(4), pages 439-471, August.
    9. Menkhoff, Lukas, 1997. "Examining the Use of Technical Currency Analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(4), pages 307-318, October.
    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. Carol L. Osler & P.H. Kevin Chang, 1995. "Head and shoulders: not just a flaky pattern," Staff Reports 4, Federal Reserve Bank of New York.
    12. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
    13. Bong-Chan, Kho, 1996. "Time-varying risk premia, volatility, and technical trading rule profits: Evidence from foreign currency futures markets," Journal of Financial Economics, Elsevier, vol. 41(2), pages 249-290, June.
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    Cited by:

    1. Nguyen, James, 2004. "The Efficient Market Hypothesis: Is It Applicable to the Foreign Exchange Market?," Economics Working Papers wp04-20, School of Economics, University of Wollongong, NSW, Australia.

    More about this item

    Keywords

    Technical; analysis; forex; exchange; rates; efficiency; trading;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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