Trading in Forex: Modern vs Traditional Indicator


  • Jasmeet Singh


Technical analysis has been widely studied in academic literature and so is MACD (Moving average convergence divergence) indicator for finding the profitability of these in stock and forex markets. The researches for MACD indicator mostly show negative or mixed results when applied to forex market. These researches have the following limitations- one, they do not take fixed risk for every trade, or second, they have very high value of risk employed for every trade that a trader will not mostly undertake, or fixed stop loss(the stop loss being fixed no. of pips away from entry price), or a combination of these. The paper analyses the profitability of the MACD and compares it to the profitability of the Aroon up and down indicator to see whether a modern indicator can give better profitability as compared to a popular and an already established technical indicator. Back testing is done for the past four years on the EURUSD, GBPUSD, CHFJPY, AUDCAD and AUDNZD currency pairs. The trading strategy involves taking a risk of only 1% in every trade so that our losses do not fall into a free-fall if the trade goes the other way. The back testing shows us that the Aroon gives us profitable trades while the trades done using the MACD result in losses.