Technical Trading Strategies for the INR-USD Currency Market

Student Name: Yogesh Chati

A variety of strategies are used by the traders who base their decisions on what is termed as technical analysis - judgments on information from past price historys, in trading circles. In this project, three of the very commonly used trading strategies, namely, the Moving Average, Pivot Points and Bollinger Bands, are considered and the pay-offs they generate when applied to INR-USD currencies are analyzed. The ARMA-GARCH model fails to capture the behavior of the pay-off from these series and hence a jump diffusion model is also considered. The mean returns and the variance are arrived at and the standard return to risk ratio is examined to determine the winning strategy. It is found that the Pivot Point strategy yields the maximum return to risk ratio followed by the Moving Average and the Bollinger Band strategies, each of which in turn significantly outperform the standard market returns.