Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach

1 December 1997

journal article
Published by JSTOR in Journal of Financial and Quantitative Analysis

Vol. 32 (4) , 405
https://doi.org/10.2307/2331231

Abstract

Using genetic programming techniques to find technical trading rules, we find strong evidence of economically significant out-of-sample excess returns to those rules for each of six exchange rates over the period 1981-1995. Further, when the dollar/Deutsche mark rules are allowed to determine trades in the other markets, there is significant improvement in performance in all cases, except for the Deutsche mark/yen. Betas calculated for the returns according to various benchmark portfolios provide no evidence that the returns to these rules are compensation for bearing systematic risk. Bootstrapping results on the dollar/Deutsche mark indicate that the trading rules detect patterns in the data that are not captured by standard statistical models.

Keywords

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