Application of technical analysis in the forex market: Comparison of technical trading rules in developed and emerging markets

Lelei, Elaine Cherop
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Strathmore University
This paper examines the application of technical analysis in the forex market. It particularly looks at the comparison of technical trading rules in developed and emerging markets. In order to assess the performance, three momentum-based indicators are chosen, namely Moving Average Convergence Divergence, Relative Strength Index and Moving Average Crossover, while one volume indicator is chosen, namely Money Flow Index. To gauge the performance of the indicators, the parameters of each of the indicators is subjected to seven currency pairs which were, EURIUSD, GBP/USD, USD/JPY and USD/CNY for developed markets and USD/ZAR, USD/MXN and USD/TR Y for emerging markets. The daily closing prices of each of the currency pairs are used, and based on the parameters of the individual indicator, a buy or sell signal is conveyed by the indicator, and the profit or loss, of each of the signals is measured and summed up so that comparison of performance is possible. Daily closing prices from 2005- 2020 are used. The findings suggest emerging markets are more profitable than the developed markets.
Submitted in partial fulfillment of the requirements for the Degree of Bachelor of Business Science in Finance at Strathmore University