When Support/Resistance Levels are Broken, Can Profits be Made? Evidence from the Foreign Exchange Market
(The associated paper is significantly revised and new authors have contributed to it) We investigate on three exchange rate series the profitability of signals generated by the breaking of support and resistance identified and supplied by Chartists. Such profitability is assessed, and then compared to ones obtained with other technical rules. We confirm previous findings that trading range breaks do generate profitable signals, even after the inclusion of transaction costs, and we show that signals generated using Chartists inputs are more frequent and profitable. Supports and resistances may work by warning traders against holding currencies subject to adverse trends.
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