The significance of technical trading-rule profits in the foreign exchange market: a bootstrap approach

Richard M. Levich · Lee R. Thomas

472 citations0/0 files storedJournal of International Money and Finance

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Financial Markets and Investment Strategies Financial Risk and Volatility Modeling Stock Market Forecasting Methods

Abstract

In this paper, we present new evidence on the profitability and statistical significance of technical trading rules in the foreign exchange market. We utilize a new data base, currency futures contracts for the period 1976–1990, and we implement a new testing procedure based on bootstrap methodology. Our results suggest that simple technical trading rules have very often led to profits that are highly unusual. Splitting the entire sample period into three 5-year periods reveals that on average the profitability of some trading rules declined in the latest period although profits remained positive (on average) and significant in many cases. (JEL F31, F47, G15).

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References

1990Long Swings in the Dollar: Are They in the Data and Do Markets Know It?1990Anomalies: Foreign Exchange 1966Filter Rules and Stock-Market Trading 1961Price Movements in Speculative Markets : Trends or Random Walks

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2000Agent-based computational finance: Suggested readings and early research 2006The obstinate passion of Foreign Exchange Professionals: \ntechnical analysis 1997High frequency data in financial markets: Issues and applications 1999Technical trading rule profitability and foreign exchange intervention 2004Technical Analysis in Financial Markets 1995The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence 2003Do Momentum-Based Strategies Still Work in Foreign Currency Markets?1999Linear, non-linear and essential foreign exchange rate prediction with simple technical trading rules

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