Forecasting Foreign Exchange Market Trends: Is Technical Analysis Perspective Successful?

ABSTRACT: Foreign exchange market or FOREX is the biggest and the most liquid financial market in the world. According to the BIS latest report announced in December 2010, the volume of daily transactions in this market is about $3.98 trillion. Volatility dominated in this market made it a complicated business for policy makers and consequently caused investors and speculators to be very cautious in their trading strategies. The thesis investigates the reliability of technical analysis for forecasting the accurate price and trend direction in the FOREX market. The analysis was carried out for a period of two months. Due to existence of high fluctuations with exchange rates, investors choose technical analysis in order to minimize the risk associated with the market and finally find currency pairs’ price movement. In order to carry out the test, the research employs some of the common indicators and tools provided by brokerage companies in the transactional platform of Meta Trader 4. These indicators are examined together in order to send different types of signals to traders to identify the price reversal pattern configuration. Technical analysis test confirms to be a reliable instrument for forecasting the market trend. The results show that 63.34% of total transactions faced with profit; 46.67% in daily and the rest 16.67% in weekly trading. The test has also found that technical analysis is not very reliable for monthly forecasting. Keywords: forex market, foreign exchange forecasting strategies, technical analysis, reversal pattern model, common indicators. ……………………………………………………………………………………………………………………………………………………………………………………………………………………