Analysis of Profit Mean Differences in Foreign Exchange Trading Using Technical Analysis Method Simple Moving Averages
Thesis
Analysis of Profit Mean Differences in Foreign Exchange Trading Using Technical Analysis Method Simple Moving Averages
Yasinta
Student Number : 05 03 15394
Faculty of Economy
University of Atma Jaya Yogyakarta
Lecturer : A. Jatmiko Wibowo, Drs., SIP., MSF.
Abstract
This research is purposedly done to analyze profit mean differences derived from the trading of four samples (pairs) of foreign exchanges, which are Eur/Usd, Gbp/Usd, Usd/Jpy, and Usd/Idr by using ten different combinations of simple moving averages (SMA) periods. The reasearch period is from January 2006 through December 2008. Each rate’s data obtained is used to find the appropriate SMA levels for each SMA period so that the crossovers can be observed. The profit is calculated for every given buy-sell signal after considering transaction cost in the amount of spread. They are then analyzed by using one-way ANOVA in order to find whether there are significant mean differences.
The finding suggests that there is no significant mean difference from profit gained from the trading of four foreign exhange samples. This result is on the contrary with former analysis which studied exchange rate’s data from 1979 through 1987 and found there to be significant differences in profit derived from Japanese Yen (Jpy) trading using different periods of SMA. Likewise, another study that analyzed exchange rate’s data from 1984 through 2003 also concluded there to be profit differences. This discrepancy might be rooted from the high market volatility during the periods of 1970s until 1980s. Other factors are such as the rising level of market liquidity, the learning period of floating exchange rate system, and the change in monetary policy that affected the reaction of private sector toward central bank announcement and action during the highlighted periods.
This research implies that market players can make use of SMA to predict price movement and will not get significant profit differences from different periods of SMA. The utilization of SMA can be profitable, although in this study not every period provides positive profit mean.
Keywords : Profit of foreign exchange trading, technical analysis performance, simple moving averages