RANDOM STRATEGY VERSUS TECHNICAL ANALYSIS STRATEGY: THE CASE OF EUR/USD INTRADAY TRADING
Miroslav Svoboda
Masaryk University, Faculty of Economics and Administration, Department of Finance, Lipová 41a, 603 00 Brno, Czech Republic
Martina Sponerová
Masaryk University, Faculty of Economics and Administration, Department of Finance, Lipová 41a, 603 00 Brno, Czech Republic
DOI: https://doi.org/10.31410/Balkans.JETSS.2020.3.1.34-39
Miroslav Svoboda
Masaryk University, Faculty of Economics and Administration, Department of Finance, Lipová 41a, 603 00 Brno, Czech Republic
Martina Sponerová
Masaryk University, Faculty of Economics and Administration, Department of Finance, Lipová 41a, 603 00 Brno, Czech Republic
DOI: https://doi.org/10.31410/Balkans.JETSS.2020.3.1.34-39
Balkans Journal of Emerging Trends in Social Sciences, (2020) , Vol 3, No 1
ISSN: 2620-164X
ISSN: 2620-164X
Abstract: This paper provides a comparison between the strategy based on technical analysis and the strategy based on random trading on a highly liquid EUR/USD foreign exchange market. The authors analyze three years of data, and in every intraday trading session. Technical analysis strategy uses essential indicators such as moving averages (MA). Every trading position will have the risk-reward ratio (RRR) 3 to 1. In addition, another trading positions on the EUR/USD currency pair will be opened at the same time each day, without technical analysis. The time of entry into position will be indicated by past high liquidity on a given currency pair at a given time with a similar risk-reward ratio (RRR) 3 to 1. This paper aims to compare the strategy of technical analysis and the random strategy in intraday trading concerning the profitability of these trades.
Keywords: Investment Decisions, Foreign Exchange Markets, Currency Markets, Moving Average, Backtesting, Intraday Trading.
JEL Classifications F13
REFERENCES
Coakley, J. & Marzano, M. & Nankervis, J. (2016). How profitable are FX technical trading rules?
International Review of Financial Analysis, vol. 45, pp. 273-282.
Gehrig, T., & Menkhoff, L. (2004). The use of flow analysis in foreign exchange: Exploratory
evidence. Journal of International Money and Finance, vol. 23, pp. 573–594.
Hsu, P. H., & Taylor, M. P. (2013). Forty years, thirty currencies and 21,000 trading rules: A largescale,
data-snooping robust analysis of technical trading in the foreign exchange market.
Working paper, thirty currencies and 21.
Laïdi, A. (2008). Currency Trading And Intermarket Analysis. 1nd ed. Wiley Trading, pp. 279.
LeBaron, B. (1999). Technical trading rule profitability and foreign exchange intervention. Journal
of International Economics, vol. 49, pp. 125-143.
LeBaron, B. (2002). Technical trading profitability in foreign exchange markets in the 1990s.
Working paper, Brandeis University.
Levich, R. M., & Thomas, L. R. (1993). The significance of technical trading-rule profits in the
foreign exchange market: A bootstrap approach. Journal of International Money and Finance,
vol. 12 (5), pp. 451-474.
Lui, Y. H., & Mole, D. (1998). The use of fundamental and technical analysis by foreign exchange
dealers: Hong Kong evidence. Journal of International Money and Finance, vol. 17, pp.
535–545.
Menkhoff, L. (1997). Examining the use of technical currency analysis. International Journal of
Finance and Economics, vol. 2(4), pp. 307–318.
Menkhoff, L., & Taylor, M. P. (2007). The obstinate passion of foreign exchange professionals:
Technical analysis. Journal of Economic Literature, vol. 45, pp. 936–972.
Neely, C. J. (1997). Technical analysis in the foreign exchange market: A layman’s guide. Federal
Reserve Bank of St. Louis Review, vol. 79(5), pp. 23-38.
Oberlechner, T. (2001). Importance of technical and fundamental analysis in the European foreign
exchange market. International Journal of Finance and Economics, vol. 6(1), pp. 81–93.
Taylor, M. P., & Allen, H. (1992). The use of technical analysis in the foreign exchange market.
Journal of International Money and Finance, vol. 11, pp. 304–314.
Sager, M. J., & Taylor, M. P. (2006). Under the microscope: The structure of the foreign exchange
market. International Journal of Finance and Economics, vol. 11, pp. 81-95.
Sweeney, R. J. (1986). Beating the foreign exchange market. Journal of Finance, vol. 41(1), pp.
163-182.
Wilder, J. W. (1978). New concepts in technical trading systems. Trend Research, McLeansville, NC.
Zarabi, N. & Snaith, S. & Coakley, J. (2017). FX technical trading rules can be profitable sometimes!
International Review of Financial Analysis, vol. 49, pp. 113-127.
Keywords: Investment Decisions, Foreign Exchange Markets, Currency Markets, Moving Average, Backtesting, Intraday Trading.
JEL Classifications F13
REFERENCES
Coakley, J. & Marzano, M. & Nankervis, J. (2016). How profitable are FX technical trading rules?
International Review of Financial Analysis, vol. 45, pp. 273-282.
Gehrig, T., & Menkhoff, L. (2004). The use of flow analysis in foreign exchange: Exploratory
evidence. Journal of International Money and Finance, vol. 23, pp. 573–594.
Hsu, P. H., & Taylor, M. P. (2013). Forty years, thirty currencies and 21,000 trading rules: A largescale,
data-snooping robust analysis of technical trading in the foreign exchange market.
Working paper, thirty currencies and 21.
Laïdi, A. (2008). Currency Trading And Intermarket Analysis. 1nd ed. Wiley Trading, pp. 279.
LeBaron, B. (1999). Technical trading rule profitability and foreign exchange intervention. Journal
of International Economics, vol. 49, pp. 125-143.
LeBaron, B. (2002). Technical trading profitability in foreign exchange markets in the 1990s.
Working paper, Brandeis University.
Levich, R. M., & Thomas, L. R. (1993). The significance of technical trading-rule profits in the
foreign exchange market: A bootstrap approach. Journal of International Money and Finance,
vol. 12 (5), pp. 451-474.
Lui, Y. H., & Mole, D. (1998). The use of fundamental and technical analysis by foreign exchange
dealers: Hong Kong evidence. Journal of International Money and Finance, vol. 17, pp.
535–545.
Menkhoff, L. (1997). Examining the use of technical currency analysis. International Journal of
Finance and Economics, vol. 2(4), pp. 307–318.
Menkhoff, L., & Taylor, M. P. (2007). The obstinate passion of foreign exchange professionals:
Technical analysis. Journal of Economic Literature, vol. 45, pp. 936–972.
Neely, C. J. (1997). Technical analysis in the foreign exchange market: A layman’s guide. Federal
Reserve Bank of St. Louis Review, vol. 79(5), pp. 23-38.
Oberlechner, T. (2001). Importance of technical and fundamental analysis in the European foreign
exchange market. International Journal of Finance and Economics, vol. 6(1), pp. 81–93.
Taylor, M. P., & Allen, H. (1992). The use of technical analysis in the foreign exchange market.
Journal of International Money and Finance, vol. 11, pp. 304–314.
Sager, M. J., & Taylor, M. P. (2006). Under the microscope: The structure of the foreign exchange
market. International Journal of Finance and Economics, vol. 11, pp. 81-95.
Sweeney, R. J. (1986). Beating the foreign exchange market. Journal of Finance, vol. 41(1), pp.
163-182.
Wilder, J. W. (1978). New concepts in technical trading systems. Trend Research, McLeansville, NC.
Zarabi, N. & Snaith, S. & Coakley, J. (2017). FX technical trading rules can be profitable sometimes!
International Review of Financial Analysis, vol. 49, pp. 113-127.
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