Order Flow, Volatility and Fuzzy Logic: Technical Analyses for Currency Trading
53 Pages Posted: 4 Jun 2017
Date Written: May 15, 2017
This paper proposes a multivariate fuzzy logic approach to boosting the profitability of technical analysis for currency trading. The approach incorporates information on underlying market volatility in addition to order-flow-based exchange-rate return forecasts. We show the superiority of our approach by comparing it with the performances of various strategies such as simple trading rules and neural-fuzzy-logic trading rules proposed in the literature. Our approach yields consistently and remarkably higher Sharpe ratios for all the three major and all the three commodity exchange rates investigated. The results provide currency traders with a useful guide to conceiving profitable trading strategies.
Keywords: Order flow; Volatility; Multivariate fuzzy logic; Neuro fuzzy logic; Technical analysis; Currency trading
JEL Classification: F31; G14; C45; C52; C53
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