Foreign currency trading: Can investors profit from trends? - St. Louis Post-Dispatch- Forex News

With the potential for profits so large, it should not be surprising that huge amounts of resources are devoted to finding and exploiting anomalies in security prices. With the combination of intellectual talent and the power of today's computers, we should not be surprised when the search for an anomaly occasionally proves fruitful, because markets are not perfectly efficient. However, the major spot currency exchange rates and associated futures prices have produced anomalies that allowed savvy traders and investors to profit for years using technical models. If a clear, efficient market anomaly is discovered, the behavior (or lack of behavior) that gives rise to it will tend to be eliminated by competition among investors for higher returns. According to the paper, "The only currency with substantial profits following 1995 is the Japanese yen, and the yen's profit vanished after 2000. Another explanation could be that the 'dumb money,' which had never previously recognized exchange rate trends and had systematically lost money in these markets, finally got smart, too. read more

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