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September/October 1997, 
Vol. 79, No. 5
Posted 1997-09-01

Technical Analysis in the Foreign Exchange Market: A Layman's Guide

Economists have traditionally been skeptical of the value of technical analysis, the use of past price behavior to guide trading decisions in asset markets. Instead, they have relied on the logic of the efficient market hypothesis. The author briefly explains the fundamentals of technical analysis and the efficient markets hypothesis as applied to the foreign exchange market, evaluates the profitability of simple trading rules, and reviews recent ideas that might justify extrapolative technical analysis.