Components of the Profitability of Technical Currency Trading

technical performance of the currency trading based on intraday data to come …… exchange. However, they show that the profitability of ….

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Components of the Profitability of Technical Currency Trading
The main results of this study can be summarized as follows:

  • Each of the 1024 moving average and momentum models investigated would have produced a positive overall return in the DM/dollar market between 1973 and 1999. The risk of making an overall loss when strictly following one of these models would have been close to zero.
  • In the out-of-sample period between 2000 and 2004, 91.7% of the models would have remained profitable.
  • The profitability of technical currency trading is exclusively due to the exploitation of persistent exchange rate trends since profitable positions last on average several times longer than unprofitable positions. At the same time, unprofitable positions occur more frequently than profitable positions and the average loss per day during unprofitable positions is higher then the average profit during profitable positions.
  • These results do not change substantially when technical currency trading is examined over subperiods. With 1024 models and 8 subperiods, we have 8192 cases. In only 840 of these did the technical models produce losses.
  • The out-of-sample profitability of those models which performed best in sample is slightly higher than the average in-sample profitability of all models. However, the ex-post best models perform worse out of sample than in sample.
  • The profitability of technical trading has been significantly lower since the late 1980s as compared to the first 15 years of the floating rate period. However, there is no clear trend of declining returns within the period since the late 1980s
Download Components of the Profitability of Technical Currency Trading pdf from faculty.haas.berkeley.edu, 24 pages, 362.49KB.
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