Aggregate Trading Behaviour Of Technical Models And The Yen-Dollar Exchange Rate 1976-2007

The paper analyzes the interaction between the trading behaviour of 1024 moving average and momentum models and the fluctuations of the yen/dollar exchange rate. The author shows first that these models would have exploited exchange rate trends quite profitably between 1976 and 2007. The author then shows that the aggregate transactions and positions of technical models exert an excess demand pressure on currency markets since they are mostly on the same side of the market. When technical models produce trading signals almost all of them are either buying or selling, when they maintain open positions they are either long or short.