Figure 3 shows the best 30 historically simulated trading strategies, when no commissions for trading are included. Top strategy return an interesting 13% annualized considering the average return for the sample in Figure 2. And the all 30 strategies return more than 6% a year. All the Sharpe indexes are statistically significant.

The most suitable parity for trading seems to be the US-UK pair. Additionally, it seems that there is no a right tool and any of all the simple rules are useful. That is, no simple rule is the best apparently. The regressions show that the dummy variable (1: if a buy signal arise and 0: if not) can explain an important portion of the times series of the daily returns. The average coefficient of determination is an important 0.11. The only problem seems to be the high number of roundtrip transactions, 563 in order to be precise. The average number of days of each transaction is just 12 days.

Figure 4 shows the best 30 historically simulated trading strategies, when commissions for trading and indexation are included into the analysis. Now, the focus of the investor should change. Before, average yearly return was the most important thing. Now, introducing commissions and indexation, the investor’s focus should change to maximize the return in excess of the index return which could account for to pay commissions.

The first thing to note is the dramatic reduction in the number of transactions and the rise in days of the average transaction, 19 versus 563 before and 443 versus 12 before, respectively. Using filters for each technique not just have the advantage of identify false starts, but also have the advantage of reduce the number of trades. Top strategy now has a rate of return in excess to indexation of just 2.75% in an annualized basis.

And the 30 strategies return just 2.45% a year, in average. This represents a weak 0.32% a year, in excess of indexation, in order to pay roundtrip commissions. In this scenario, it seems that there is neither a most suitable parity nor a right tool for trading.

**Figure 4:** The best 30 historically simulated trading strategies. Commissions and
indexation included.

Figure 5 shows the best 6 historically simulated trading strategies for each pair when commissions and indexation are included into the analysis. Results for Australia show that eventually none investor could have beaten a simple strategy of “buy and hold”, using any of the eight simple rules analyzed here. Simply, there is no enough return in excess for roundtrip commissions.

The average excess return was 0.06%. Results for Canada show a slightly better picture, there were two strategies that return more than 0.48% meanwhile the rest four have an average return of just 0.08%. Results for Japan, Switzerland and the UK show an average return in excess for roundtrip commissions of 0.39%, 0.22% and 0.17% respectively.

**Figure 5:** The best 6 historically simulated trading strategies for each country.
Commissions and indexation included.

Prof. F. Rubio

Technical analysis on foreign exchange: 1975-2004

The aim of this paper is to determine the potential profitability of technical analysis applied on the foreign exchange market.

Prof. Fernando Rubio