12. Technical Analysis in the Foreign Exchange Market

  1. Jessica James,
  2. Ian W. Marsh3 and
  3. Lucio Sarno3,4
  1. Christopher J. Neely1 and
  2. Paul A. Weller2

Published Online: 8 OCT 2012

DOI: 10.1002/9781118445785.ch12

Handbook of Exchange Rates

Handbook of Exchange Rates

How to Cite

Neely, C. J. and Weller, P. A. (2012) Technical Analysis in the Foreign Exchange Market, in Handbook of Exchange Rates (eds J. James, I. W. Marsh and L. Sarno), John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118445785.ch12

Editor Information

  1. 3

    Cass Business School, London, UK

  2. 4

    CEPR, UK

Author Information

  1. 1

    Research Department, Federal Reserve Bank of St. Louis, St. Louis, MI, USA

  2. 2

    Tippie College of Business, University of Iowa, Iowa City, IA, USA

Publication History

  1. Published Online: 8 OCT 2012
  2. Published Print: 14 JUN 2012

ISBN Information

Print ISBN: 9780470768839

Online ISBN: 9781118445785



  • data mining;
  • data snooping;
  • foreign exchange market;
  • publication bias;
  • technical trading rule (TTR);
  • technical analysis


Technical analysis is the use of past price behavior and/or other market data, such as volume, to guide trading decisions in asset markets. These decisions are often generated by applying simple rules to historical price data. A technical trading rule (TTR), for example, might suggest buying a currency if its price has risen more than 1% from its value 5 days earlier. This chapter introduces the technical methods, and then discusses how and why academic researchers have investigated these methods in the foreign exchange market. It then describes what economists have learned about technical analysis. The chapter concludes by discussing promising avenues of future research. Several potentially complementary hypotheses have been put forward to explain the apparent success of technical analysis. There are at least three ways—data snooping, publication bias, and data mining—in which the apparent returns could be spurious, an artifact of the research process.

Controlled Vocabulary Terms

data mining; data snooping; foreign exchange markets; publication bias; technical analysis; technical trading profits