Forex Trading System Development

The focus of this report is to demonstrate the process of building a trading system to be used in the foreign exchange market. The report will introduce an overview of the currency market and different trading techniques and concepts used in the construction of a trading system. The process of building a forex trading strategy, from initial formation to optimization, is laid out based on existing research. The results and analysis of the group’s own experience building and testing a forex strategy is included to exhibit the method presented in the report

Development of a Trading Strategy in Financial Market Using MetaTrader 4

Bakalářská práce se zaměřuje na tvorbu automatické obchodní strategie pro Forex v programovacím jazyce MQL, který je speciálně určen pro obchodní platformu MetaTrader 4. Teoretická část obsahuje základní a pokročilé principy forexového obchodováni. Navržená strategie byla podrobena optimalizaci a backtestu.This thesis focuses on the development of an automated Forex trading strategy in the MQL programming language, which is specifically designed for the trading platform MetaTrader 4. The theoretical part includes basic and advanced principles of forex trading. The proposed strategy has underwent to optimization and backtesting.

Hybridizing data stream mining and technical indicators in automated trading systems

Automated trading systems for financial markets can use data mining techniques for future price movement prediction. However, classifier accuracy is only one important component in such a system: the other is a decision procedure utilizing the prediction in order to be long, short or out of the market. In this paper, we investigate the use of technical indicators as a means of deciding when to trade in the direction of a classifier’s prediction. We compare this “hybrid” technical/data stream mining-based system with a naive system that always trades in the direction of predicted price movement. We are able to show via evaluations across five financial market datasets that our novel hybrid technique frequently outperforms the naive system. To strengthen our conclusions, we also include in our evaluation several “simple” trading strategies without any data mining component that provide a much stronger baseline for comparison than traditional buy-and-hold or sell-and-hold strategies

FOREX Microstructure, Invisible Price Determinants,and the Central Bank's Understanding of Exchange Rate Formation

The paper investigates the transmission of macroeconomic factors into the price-setting behavior of a specific dealer in the FX market. This problem is viewed from the perspective of a central banker who observes the price evolution but does not make the market in the home currency. The central banker's task is to explain the forex behavior in terms of conventional economic logic. The analysis is based on a model of a multiple dealer market under two organizations - direct inter-dealer and brokered. The model is constructed in such a way as to reflect the most prominent features of the market for the Czech koruna and, accordingly, to address some issues of key relevance to the Czech National Bank's exchange rate policy. We show that the totality of the exchange rate-relevant fundamental factors influence the market maker's behavior through a single sufficient statistic, his 'marginal' valuation of foreign currency holdings. Under the two studied trading mechanisms, the marginal valuations across market participants determine the equilibrium exchange rate by means of different trade patterns. Specifically, the brokered market is inferior to the direct one in terms of welfare improvement through trade. It takes a higher inter-dealer trade volume in the brokered market to absorb a new price impulse. Therefore, the central banker would do best by monitoring the brokered segment (as the only partially transparent one available), but by conducting interventions in the direct segment, where the desired impact is easier to achieve.forex microstructure, multiple dealership, order flow, pricing schedule.

Cartesian genetic programming for trading: a preliminary investigation

In this paper, a preliminary investigation of Cartesian Genetic Programming (CGP) for algorithmic intraday trading is conducted. CGP is a recent new variant of genetic programming that differs from traditional approaches in a number of ways, including being able to evolve programs with limited size and with multiple outputs. CGP is used to evolve a predictor for intraday price movements, and trading strategies using the evolved predictors are evaluated along three dimensions (return, maximum drawdown and recovery factor) and against four different financial datasets (the Euro/US dollar exchange rate and the Dow Jones Industrial Average during periods from 2006 and 2010). We show that CGP is capable in many instances of evolving programs that, when used as trading strategies, lead to modest positive returns

“Incentives from Exchange Rate Regimes in an Institutional Context"

In a simple open EME macromodel, calibrated to the typical institutions and shocks of a densely populated emerging market economy, a monetary stimulus preceding a temporary supply shock can lower interest rates, raise output, appreciate exchange rates, and lower inflation. Simulations generalize the analytic result with regressions validating the parameter values. Under correct incentives, such as provided by a middling exchange rate regime, which imparts limited volatility to the nominal exchange rate around a trend competitive rate, forex traders support the policy. The policy is compatible with political constraints and policy objectives, but analysis of strategic interactions brings out cases where optimal policy will not be chosen. Supporting institutions are required to coordinate monetary, fiscal policy and markets to the optimal equilibrium. The analysis contributes to understanding the key issues for countries such as India and China that need to deepen markets in order to move to more flexible exchange rate regimes.exchange rate, hedging, supply shocks, EMEs, incentives, politics