Do Foreign Exchange Markets Still Trend?

Abstract

Is it possible to trend-trade profitably in foreign currencies? Examination of both major currency futures contracts that have been trading since the 1970s and more recent contracts on exotic currencies that have begun to trade only in the past several years shows that the era of easy profits in major foreign currencies from simple trend-following strategies is over. Trend-trading in a currency may have been advantageous in the early years of a floating-rate regime, but markets have adapted so that profits from these simple trading strategies have vanished. Newly trading currencies do appear susceptible to trend-following trading strategies, and there may remain in this case some attractive profit opportunities.

TOPICS: Portfolio construction, technical analysis, currency