Empirical evidence shows forex autotrading performs better

Does automated trading perform better than the other trading techniques? This is an old, still open question, to which only emprical evidence can provide answers. Three researchers, Antonio Alonso-Gonzalez, Marta Peris-Ortiz, Vicent Almenar-Llongo in their paper “Providing Empirical Evidence from Forex Autotrading to Contradict the Efficient Market Hypothesis” (2015) performed some tests to supply useful evidence.

The three authors compared results from an automated operational strategy (or autotrading robot) with those from other financial products, with the goal to analyze the performance of this robot. To this end, they optimized and evaluated an autotrading robot based on differences in signals of moving average convergence divergence (MACD) indicator. They applied this technique to six major currency pairs (AUDUSD, EURUSD, GBPUSD, USDCAD, USDCHF, and USDJPY), exploiting a one-hour timeframe.

They performed the analysis for an optimization period which spans from 2001 to 2008 and testing period (2008 to late August 2011), “obtaining satisfactory results for all currency pairs”. In addition, to evaluate the autotrading robot’s performance, “results for all currency pairs were compared with those of other homogeneous financial products, namely exchange-traded funds (ETFs). Returns from the autotrading robot for four currency pairs were considerably better than those generated by ETFs”.

Results from the autotrading robot were always positive for all the currency pairs. In contrast, ETFs yielded negative returns in some cases. Their findings also provide empirical evidence contradicting the famous efficient market hypothesis developed by Eugene Fama. The paper therefore provides an important contribution to research into the development and use of automated forex trading by all the categories of forex traders.

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