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V.8:4 (145-151): Technically trading the ¥en by Thomas P. Drinka, Timothy L. Krehbiel, Stephen Ptasienski
V.8:4 (145-151): Technically trading the ¥en by Thomas P. Drinka, Timothy L. Krehbiel, Stephen Ptasienski
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Technically trading the en by Thomas P. Drinka, Timothy L. Krehbiel, Stephen Ptasienski
Speculators and commercial hedgers who trade currency futures often use technical analysis to determine trading signals. We statistically tested 34 of these indicators to see which were profitable and free from such bias as auto-correlation when used to trade the International Money Market (IMM) yen contract. Of the 34 indicators in Figure 1,16 survived our testing. The indicators are used to exploit price trends or price volatility. The former, referred to as "BS/SW," usually involve buying strong markets and selling weak ones, while the latter use involves buying a weak market and selling a strong one and so are labeled "BW/SS." Of the 34 indicators, 28 are trend followers.
We tested each indicator with one to three parameters over a range of values. For example, accumulation/ distribution in Figure 1 has a "short" parameter that was decremented from 98 to 52 by two-point steps and a "long" parameter that was incremented from 2 to 48 by two-point steps. In all, these parameters generated 576 different combinations!
We used out-of-sample trading to get the best simulation of real-world results. We first simulated trading on a year's data using the nearby contracts. The simulator, Micro Vest's BackTrak, then chose the best parameters and traded them for the next succeeding quarter, which was not part of the year sampled. Then we moved everything up one quarter and repeated the process. In all, we calculated returns from March 2, 1978, to September 1, 1987.
Speculators and commercial hedgers who trade currency futures often use technical analysis to determine trading signals. We statistically tested 34 of these indicators to see which were profitable and free from such bias as auto-correlation when used to trade the International Money Market (IMM) yen contract. Of the 34 indicators in Figure 1,16 survived our testing. The indicators are used to exploit price trends or price volatility. The former, referred to as "BS/SW," usually involve buying strong markets and selling weak ones, while the latter use involves buying a weak market and selling a strong one and so are labeled "BW/SS." Of the 34 indicators, 28 are trend followers.
We tested each indicator with one to three parameters over a range of values. For example, accumulation/ distribution in Figure 1 has a "short" parameter that was decremented from 98 to 52 by two-point steps and a "long" parameter that was incremented from 2 to 48 by two-point steps. In all, these parameters generated 576 different combinations!
We used out-of-sample trading to get the best simulation of real-world results. We first simulated trading on a year's data using the nearby contracts. The simulator, Micro Vest's BackTrak, then chose the best parameters and traded them for the next succeeding quarter, which was not part of the year sampled. Then we moved everything up one quarter and repeated the process. In all, we calculated returns from March 2, 1978, to September 1, 1987.
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