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The performance analysis of chart patterns: Monte Carlo simulation and evidence from the euro/dollar foreign exchange market

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High Frequency Financial Econometrics

Part of the book series: Studies in Empirical Economics ((STUDEMP))

We investigate the existence of chart patterns in the euro/dollar intradaily foreign exchange market. We use two identification methods of the different chart patterns: one built on 5-min close prices only, and one based on both 5-min 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.

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Author information

Authors and Affiliations

  1. IAG Business School, Université Catholique de Louvain, 1 place des Doyens, 1348, Louvain-la-Neuve, Belgium

    Walid Ben Omrane & Hervé Van Oppens

Authors
  1. Walid Ben Omrane
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  2. Hervé Van Oppens
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Editor information

Editors and Affiliations

  1. CORE, Voie du Roman Pays, 1348, Louvain-la-Neuve, Belgium

    Luc Bauwens

  2. Department of Economics, University of Konstanz, 78457, Konstanz, Germany

    Winfried Pohlmeier

  3. ECARES, Université Libre des Bruxelles, 30, Avenue Roosevelt, 1050, Brussels, Belgium

    David Veredas

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© 2008 Physica-Verlag Heidelberg

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Omrane, W.B., Van Oppens, H. (2008). The performance analysis of chart patterns: Monte Carlo simulation and evidence from the euro/dollar foreign exchange market. In: Bauwens, L., Pohlmeier, W., Veredas, D. (eds) High Frequency Financial Econometrics. Studies in Empirical Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-1992-2_9

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