Abstract
One of the deficits of the common Bollinger band is that it fails to consider the fat tails/leptokurtosis often exists in financial time series. An adjusted Bollinger band generated by rolling GARCH regression method is proposed in this study. The performance of the adjusted Bollinger band strategy on EUR, GBP, JPY, and AUD vs. USD foreign exchange trading is evaluated. Results show that in general, the adjusted Bollinger band performs better than the traditional one in terms of success ratios, net successes, and profit. In addition, no matter there is transaction cost or not, only adjusted Bollinger strategies are recommended for investors. Adjusted Bollinger band strategies with MA 5 or 10 are recommended for EUR, GBP, and JPY. Adjusted Bollinger strategy with MA 20 is the recommended strategies for AUD.
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