Trading the Foreign Exchange Market with Technical Analysis and Bayesian Statistics

Posted: 24 Aug 2017 Last revised: 29 Jul 2021

See all articles by Arman Hassanniakalager

Arman Hassanniakalager

University of Bath - School of Management

Georgios Sermpinis

University of Glasgow

Charalampos Stasinakis

University of Glasgow

Date Written: July 1, 2021

Abstract

In this study, the profitability of technical analysis and Bayesian Statistics in trading the EUR/USD, GBP/USD, and USD/JPY exchange rates are examined. For this purpose, seven thousand eight hundred forty-six technical rules are generated and their profitability is assessed through a novel data snooping procedure. Then, the most promising rules are combined with a Naïve Bayes, a Relevance Vector Machines, Bayesian Model Averaging, a Bayesian Model Selection and a Bayesian regularised Neural Network model. In terms of our results, technical analysis has value in foreign exchange trading but the profit margins are small. On the other hand, Bayesian Statistics seems to increase the profitability of technical rules up to four times.

Keywords: Trading, Technical Analysis, Foreign Exchange, Bayesian Averaging, Relevance Vector Machines

JEL Classification: C11, C12, C53

Suggested Citation

Hassanniakalager, Arman and Sermpinis, Georgios and Stasinakis, Charalampos, Trading the Foreign Exchange Market with Technical Analysis and Bayesian Statistics (July 1, 2021). Journal of Empirical Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3021021 or http://dx.doi.org/10.2139/ssrn.3021021

Arman Hassanniakalager (Contact Author)

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom
+44(0)1225386170 (Phone)

HOME PAGE: http://researchportal.bath.ac.uk/en/persons/arman-hassanniakalager

Georgios Sermpinis

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Charalampos Stasinakis

University of Glasgow ( email )

University Avenue
Adam Smith Business School
Glasgow, Scotland G128QQ
United Kingdom

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