The Predictive Success and Profitability of Chart Patterns in the Euro/Dollar Foreign Exchange Market

IAG Working Paper No. 95-03

CORE Discussion Paper No. 2004/35

27 Pages Posted: 13 Jan 2004

See all articles by Walid Ben Omrane

Walid Ben Omrane

Brock University - Department of Finance, Operations and Information Systems (FOIS)

Hervé Van Oppens

Catholic University of Louvain (UCL) - Department of Business Administration (IAG) - Finance Unit

Date Written: June 2004

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

JEL Classification: C13, C14, F31

Suggested Citation

Ben Omrane, Walid and Van Oppens, Hervé, The Predictive Success and Profitability of Chart Patterns in the Euro/Dollar Foreign Exchange Market (June 2004). IAG Working Paper No. 95-03; CORE Discussion Paper No. 2004/35. Available at SSRN: https://ssrn.com/abstract=484384 or http://dx.doi.org/10.2139/ssrn.484384

Walid Ben Omrane (Contact Author)

Brock University - Department of Finance, Operations and Information Systems (FOIS) ( email )

Ontario, L2S 3A1
Canada

Hervé Van Oppens

Catholic University of Louvain (UCL) - Department of Business Administration (IAG) - Finance Unit ( email )

1 place des Doyens
B-1348 Louvain-la-Neuve
Belgium
32-10-478-324 (Fax)

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