The predictive success and profitability of chart patterns in the Euro/Dollar foreign exchange market

Walid Ben Omrane () and Hervé van Oppen

No 2004035, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We investigate the existence of chart patterns in the Euro/Dollar intra-daily foreign exchange market. We use two identification methods of the different chart patterns: one built on close prices only, and one based on low and high prices. We look for twelve types of chart patterns and we study the detected patterns through two criteria : predictability and profitability. We run a Monte Carlo simulation to compute the statistical significance of the obtained results. We find an apparent existence of some chart patterns in the currency market. More than one half of detected charts present a significant predictability. Nevertheless, only two chart patterns imply a significant profitability which is however too small to cover the transaction costs. The second extrema detection method provides higher but riskier profits than the first one.

Keywords: foreign exchange market; chart patterns; high frequency data; technical analysis (search for similar items in EconPapers)
JEL-codes: C13 C14 F31 (search for similar items in EconPapers)
Date: 2004-06
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Citations: View citations in EconPapers (1)

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