Abstract

Most technical analysis tools focus traditionally on the simple and exponential moving average technique. This study looks at the performance of an optimized fractal adaptive moving average strategy over different frequency intervals, where the Euro/US Dollar currency pair is analyzed due to the increased correlation between the Euro Index and EUR/USD, and the Dollar Index and EUR/USD over the last year compared to the last 15 years. The optimized strategy is evaluated against a buy-and-hold strategy over the 2000- 2015 period, using annualized returns, annualized risk and Sharpe performance measure. Due to the existence of different number of long and short trades in every trading scenario, this paper proposes the use of a new measure called the Sharpe/Total trades ratio which takes into account the number of trades when evaluating the different trading strategies. Findings strongly support the use of the adaptive fractal moving average model over the naïve buy-and-hold strategy where the former yielded higher annualized returns, lower annualized risk, a higher Sharpe value, although it was subject to more trades than the buy-and-hold strategy. The best market timing strategy occurred when using 131 daily fractal data with a Sharpe/Total trades ratio of 0.31%.

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