Fundamental Analysis + Technical Analysis = Success

There is a research paper that was brough to my attention by one of the authors which finds that combining two types of information (fundamental and technical analysis) improves risk-adjusted performance of an investment strategy.  This paper specifically addresses the success in 23 emerging  markets. 

I asked one of the author some questions.  Here are their answers.

How long and how much research was put into the paper?

The four of us have spent in total about one man-year of work into creating this research paper. We will present it at the emerging markets conference at Cass Business School in London in May ‘08.

Do you or the other researchers have experience as professional traders?

Two coauthors of mine are purely academic, but one is at ING Investment Management and I myself am at the Quant Strategies dpt of Robeco Asset Management. I would like to tell you about our quantititave strategies and how we apply our insights in real live portfolios, but our compliance departments do not allow this. So you could mention our affiliation with
professional investment teams, but nothing about the practical application.

What is the main attraction of the paper? 

I think the main attractor of the paper is the (slightly changed) abstract: The authors measure the profitability from fundamental and technical trading rules for emerging markets currency investments. Using a sample of 23 emerging markets with a floating exchange rate regime over the period 1995-2007, they document that both types of information can be exploited to implement profitable alpha trading strategies. In line with evidence from surveys of foreign exchange professionals concerning the use of fundamental and technical analysis, the authors find that combining the two types of information improves the risk-adjusted performance of the investment strategies, with Sharpe ratios above 1.4 for emerging currency markets and above 0.5 for developed currency markets. These results indicate that active currency traders may wish to expand their strategies to emerging currency markets, where alpha opportunities seem to be larger.

You can download the paper from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1088222

Popularity: 4%

Forex Project Custom Indicators

I’ve received numerous requests for my version of the Squeeze and the pivot point indicator.  I have started a group on esignal where all my indicators and relevent files are located.  You can download them from here:

http://share.esignal.com/groupcontents.jsp?groupid=852 

I have encrypted the indicator source code so it cannot be viewed or modified.  This is not for any reason but to prevent shady people from publishing my work as their own and from attempting to profit from it.

Popularity: 3%

Free Forex Price Alerts

There is a website that will send forex price alerts to any wireless device.  You can also add indicator alerts such as Moving Averages (Simple, Weighted, Exponential), Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), Stochastics, Bollinger Bands and Directional Movement Index (DMI) when they reach a significant level.

The service is free.  I signed up and will have alerts sent to my cell phone via text message.  I don’t want the market to rule my life but I find that I miss out on good trades when I’m at work or away from my computer.  

You can check out alert!fx. 

Popularity: 2%

Most Popular Forex Indicators?

In an attempt to find the most popular forex technical indicators, I’ve done many searches and read many forex technical articles.  These results should be taken with a grain of salt as finding the real answer to this question would be impossible for me.  The only way I could see this question being answered accurately is for a provider such as eSignal to provide all of their subscribers indicator usage.   It would be very interesting if they provided this. 

Understand that I picked the first 14 indicators that I encountered and that there are a breadth of other technical indicators available.  These 14 indicators are ranked here with a point value which indicates predominance of encounter:

1.   Simple Moving Average ( SMA) - 27.4
2.   Exponential Moving Average (EMA) -  20.4
3.   CCI -  16.7
4.   Average True Range -  14.4
5.   Fibonacci - 13.9
6.   MACD - 13.2
7.   Bollinger Bands -  6.5
8.   Relative Strength Index (RSI) -  5.5
9.   Stochastic (Fast or Slow) -  3.4
10. Rate of Change (ROC) -  2.8
11. Accumulation Distribution - 2.2
12. Directional Movement Index (DMI) -  1.5
13. Parabolic SAR -  1.0
14. Donchian Channels -  .02

Popularity: 1%

Technical Analysis of Stocks & Commodities

I purchased the December issue of "Technical Analysis of Stocks & Commodities" this weekend at Barnes and Noble. 

I want to mention some key points contained in the magazine interview with Barbara Rockefeller.  She is a trader specializing in foreign exchange, with more than 20 years of institutional experience.  

What She Reads

Wall Street Journal, Financial Times, Reuters, MarketNews, Bloomberg Market News, The New York Times, The Economist, ForeignAffaris, Business Week, Forbes

When She Works

Barbara prepares 2 newsletters a days that are purchased by big institutional firms.  She takes price data at 5 am, which is the most liquid time of day in FX, and prepares her charts.  Her morning report includes charts with 2 moving averages, a linear regression channel, relative strength, and momentum, plus any obvious hand-drawn support and resistance lines

Read more to find out why she isn’t a good trader. 

[Read more]

Popularity: 1%

VTTrader looks promising

I stumbled upon a real-time charting and trading platform last week called VTTrader.  It’s available for download at http://vtsystems.com/en/demo_trading/

This application is unbelievable stocked with over 70 indicators with the ability to create custom indicators.  It also has the ability to add 11 trading systems that were created by VTSystems.  The trading systems give buy and sell signals in real-time.

I haven’t looked into what calculations or indicators these systems use yet.  Here is a list of them:

• Bollinger Bands of Ultimate Oscillator System
• Commodity Channel Index System
• Complex Trading System
• Directional Movement Index System
• Fractal Trading System
• Level Stop-Reverse System
• Moving Average of Relative Strength System
• Schaff Trend Cycle System
• Moving Average Cross System
• Simple MACD System
• Trailing Stop System 

Popularity: 2%