In this paper, we present new evidence on the profitability and statistical significance of technical trading rules in the foreign exchange market. We utilize a new data base, currency futures contracts for the period 1976-1990, and we implement a new testing procedure based on bootstrap methodology. Using this approach, we generate thousands of new exchange rate series constructed by random reordering of each original series. We then measure the profitability of the technical rules for each new series. The significance of the profits in the original series is assessed by comparison to the empirical distribution of results derived from the thousands of randomly generated series. Overall, our results suggest that simple technical trading rules have very often led to profits that are highly unusual. Splitting the entire 15-year sample period into three 5-year periods reveals that on average the profitability of some trading rules declined in the 1986-1990 period although profits remained positive (on average) and significant in many cases.

In this paper, we present new evidence on the profitability and statistical significance of technical trading rules in the foreign exchange market. We utilize a new data base, currency futures contracts for the period 1976-1990, and we implement a new testing procedure based on bootstrap methodology. Using this approach, we generate thousands of new exchange rate series constructed by random reordering of each original series. We then measure the profitability of the technical rules for each new series. The significance of the profits in the original series is assessed by comparison to the empirical distribution of results derived from the thousands of randomly generated series.Overall, our results suggest that simple technical trading rules have very often led to profits that are highly unusual.Splitting the entire 15-year sample period into three 5-year periods reveals that on average the profitability of some trading rules declined in the 1986-1990 period although profits remained positive (on average) and significant in many cases.

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Is it possible to profitably trade trends in foreign currencies? We examine the major currency futures contracts which have been trading since the 1970s as well as more recent contracts on exotic currencies that have only begun to trade in the past few years. The main conclusion is that the era of easy profits from simple trend following strategies in major foreign currencies is over. The markets have adapted to the extent that profits from these simple trading strategies have vanished. Presumably, trending may be a feature confined to currencies in the early years of a floating rate regime. When we look at some newly trading currencies, we see more attractive profit opportunities. Newly trading currency futures prices, like their counterparts thirty years ago, appear susceptible to trend following trading strategies.3