Fuzzy logic,trading uncertainty and technical trading |
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Authors: | Nikola Gradojevic,Ramazan Genç ay |
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Affiliation: | 1. Faculty of Business Administration, Lakehead University, 955 Oliver Road, Thunder Bay, ON, Canada P7B 5E1;2. Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, Canada V5A 1S6;3. The Rimini Center for Economic Analysis, Via Patara, 3, 47900 Rimini (RN), Italy |
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Abstract: | From the market microstructure perspective, technical analysis can be profitable when informed traders make systematic mistakes or when uninformed traders have predictable impacts on price. However, chartists face a considerable degree of trading uncertainty because technical indicators such as moving averages are essentially imperfect filters with a nonzero phase shift. Consequently, technical trading may result in erroneous trading recommendations and substantial losses. This paper presents an uncertainty reduction approach based on fuzzy logic that addresses two problems related to the uncertainty embedded in technical trading strategies: market timing and order size. The results of our high-frequency exercises show that ‘fuzzy technical indicators’ dominate standard moving average technical indicators and filter rules for the Euro-US dollar (EUR-USD) exchange rates, especially on high-volatility days. |
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Keywords: | G0 G1 F3 |
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