The performance of selected technical indicators used in foreign exchange trading

Abstract

The foreign exchange market or Forex is a global network of traders which includes central banks, private and public institutions and speculators who buy and sell money. Forex is a spot market, meaning that traders trade at the current market prices which are determined by supply and demand within the market. The focus of this dissertation is to optimise the use of selected technical indicators to maximise profits and minimise losses when it comes to trading in the Forex market. For this reason, it was thought that to effectively address the research question, the best design was to emphasise the quantitative approach. Three currency pair will be used including the EUR/USD, JPY/USD and the GBP/USD and their performance will be compared using three technical indicators, including the Relative Strength Index, 50-Day EMA and the Commodity Channel Index. These strategies will all be back-tested and later there will be a period of two months of simulated real time trading to evaluate whether the technical indicators analysed in the back- test still generate profits in subsequent periods following the trial time span. In order to compliment the quantitative approach, a qualitative approach was also conducted through structured ‘face-toface’ interviews with full time or part time professional traders.