A pattern recognition algorithm for optimal profits in currency trading推荐.pdfVIP

A pattern recognition algorithm for optimal profits in currency trading Danilo Pelusi Abstract. A key issue in technical analysis is to obtain good and possibly stable profits. Various trading rules for financial markets do exist for this task. This paper describes a pattern recognition algorithm to optimally match training and trading periods for technical analysis rules. Among the filter techniques, we use the Dual Moving Average Crossover (DMAC) rule. This technique is applied to hourly observations of Euro-Dollar exchange rates. The matching method is accomplished using ten chart patterns very popular in technical analysis. Moreover, in order for the results to have a statistical sense, we use the bootstrap technique. The results show that the algorithm proposed is a good starting point to obtain positive and stable profits. Key words: training sets, trading sets, technical analysis, recognition algorithm 1 Introduction The choice of the best trading rules for optimal profits is one of the main problems in the use of technical analysis to buy financial instruments. Park and Irwin [31]described various types of filter rules, for instance the Dual Moving Average Crossover family, the Momentum group of rules and the Oscillators. For each of these filter rules we need to find the rule that assures the highest profit. Some good technical protocols, to get optimal profits in the foreign exchange market, have been found by Pelusi et al. [32]. The traders attribute to some chart patterns the property of assessing market con- ditions (in any financial market) and anticipating turning points. This kind of analy- sis started with the famous [23], which produced an important stream of literature. However, the popularity of this kind of analysis has been frequently challenged by mainstream financial economists [7,9,22,28–30,35]. Generally, the success of a rule in actual trading is independent of the type of filter used. It depends on t