Technical analysis on foreign exchange markets: MACD and RSI

• Autor(a) principal: Cardoso, João Pedro Valdez Lancinha
• Data de Publicação: 2019
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/19549
• topic: Foreign exchange markets; Technical analysis; Moving average convergence/divergence (MACD); Relative strength index (RSI); Mercado cambial; Análise técnica; Convergência/divergência das médias móveis (MACD); Índice de força relativa (RSI)

For many years, technical analysis has been a topic of discussion regarding its contribution to rational investment decisions in financial markets. In an era where computational power is greater than ever and so many market analysis tools have been developed, one may question if the least sophisticated indicators, widely used in the past, remain relevant to current traders or if, on the other hand, their ability to predict investment opportunities lost their value. In this empirical study, we assess the individual performance of Moving Average Convergence/Divergence (MACD) and Relative Strength Index (RSI) in the Forex Market, specifically on the top five currency pairs currently traded, namely, USD/EUR, USD/JPY, USD/GBP, USD/AUD and USD/CAD, using daily closing prices from January 1st, 2009 to December 31st, 2018. Based on the signals collected from the tested indicators, we simulate long and short orders using a predetermined capital amount in order to assess the overall performance and accumulated profitability of each indicator. We conclude that, for both indicators, the results are ambiguous as they differ depending on the currency pair or the period for which they are applied to. Therefore, it is not possible to confirm that these tools can systematically outperform the market indicating profitable decisions in the covered context.