This paper seeks to find out if it’s possible to forecast short term price movements in the forex market using technical analysis. If the efficient market hypothesis by Eugene F. Fama holds true, this shouldn’t be possible. However, many large financial institutions publish technical analysis for use in house, which suggests that some are able to profit or at least gain valuable information from this. This paper focuses on a private forex investor using the tools available to such an individual. This will mainly be the software MetaTrader 4, in which most analysis for this paper will be made. Most analysis will be made by programming robots that are able to trade the forex market using historical data and evaluating their performance compared to a benchmark of random trades. The results will be tested using a one-sided t-test to see if the results from using technical analysis are significantly better than the results from the benchmark. The focus will be on four currency pairs, EURUSD, GBPUSD, USDJPY and GBPJPY. These were chosen because they are some of the most traded pairs in the market and none of the countries have a fixed exchange rate with one another. Two time periods will be tested on every pair for every strategy, to see how this affects the results. This will be from the 15th of January 2019 to the 15th of March 2019 and from the 1st of January 2018 to the 31st of December 2018. Since there are almost endless possible ways to do technical analysis, four methods have been chosen for this paper; candle stick patterns, moving averages, Moving Average Converge-Divergence (MACD) and Relative Strenght Index (RSI). The results end up being that the H0 hypothesis is rejected in 10 of 12 cases, meaning that trading using technical analysis does provide a significantly better return, compared to benchmark. Not all trading methods end up being able to provide a positive average return however, and some are also more susceptible to change in their input parameters than others. Overall though, the paper ends up concluding that technical analysis does provide a significantly better return for the private forex investor than simply trading the market at random.
|Educations||Graduate Diploma in Finance, (Diploma Programme) Final Thesis|
|Number of pages||74|