The Interaction between Technical Currency Trading and Exchange Rate Fluctuations
Stephan Schulmeister ()
Finance from EconWPA
This paper examines the mutually reinforcing interactions between exchange rate dynamics and technical trading strategies. I first show that technical trading systems have been quite profitable during the floating rate period. This profitability stems from the successful exploitation of exchange-rate trends and not from taking winning positions relatively frequently. I then show that technical models exert an excess demand pressure on currency markets. When these models produce trading signals, almost all signals are on the same side of the market, either buying or selling. When technical models maintain open positions they are either long or short. Initial exchange rate movements triggered by news or by stop-loss orders are strengthened by technical trading and are often transformed into a trend. This 'multiplier effect' is reflected by the close relationship between technical trading signals and order flows. Hence, order flows are not only driven by (fundamental) news but also by technical trading, which reinforces exchange rate trends to which it responds.
Keywords: Exchange rate; Technical trading; Heterogeneous agents. (search for similar items in EconPapers)
JEL-codes: F31 G14 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-ifn
Note: Type of Document - pdf; pages: 29
References: Add references at CitEc
Citations View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
Journal Article: The interaction between technical currency trading and exchange rate fluctuations (2006)
Working Paper: The Interaction between Technical Currency Trading and Exchange Rate Fluctuations (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0512033
Access Statistics for this paper
More papers in Finance from EconWPA
Series data maintained by EconWPA ().