Illusory Profitability of Technical Analysis in Emerging Foreign Exchange Markets

We conduct an extensive examination of the profitability of technical analysis in ten emerging foreign exchange markets. Studying 25,988 trading strategies for emerging foreign exchange markets, we find that the best rules can sometimes generate an annual mean excess return of more than 30%. Based on standard tests, we find hundreds to thousands of seemingly significant profitable strategies. However, almost all of these profits vanish once the data snooping bias is taken into account. Overall, we show that the profitability of technical analysis is illusory.