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.