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Not Just another EUR/USD stat

Monday, 08 December 2008 12:39

I have always said that knowing the statistics on the currency you are trading is of paramount importance. Here is another great example. I won’t pretend that I have always known this one and I’ll tell you how you can figure it out on your own also. You can use the calculations on any currency pair.
With this stat you will know what the odds are on the pair moving in a given direction. For the EUR/USD, this translates into knowing about 75% of the time what direction the next day will go. Here’s the run-down:

1.   Use the export option to export your data to an Excel sheet.

2.   In this calculation you will be using the Close Data to calculate the info you want.

3.   The first step is calculate the change in the close price day to day.

4. Now we want to calculate how many periods a move lasts with the following equation:
a. =IF(OR(AND(F3>1,F2<1),AND(F31)),1,G2+1) It should look something like this.

5. Now we’ll calculate how many periods the move lasted with this equation:
a. =IF(G3>=G4,SIGN(F3-1)*G3,” “) This section should look like this.

6.   Now we want the total number of up periods.
a.   =ABS(SUMIF(H$3:H2606,”>0”))
i.   Note: The H2606 needs to be the last cell that holds the last close bar data. TO calculate the number of down periods, just change the > to an <.

7.   Now calculate the total number up moves with:
a.   =ABS(COUNTIF(H$3:H2606,”>0”))

Here’s what my calculations show.
1.   For ten years of data or 2604 days, there were 1330 up days and 1274 down days, remarkably even.

2.   In the same ten years there were 684 moves up and 679 moves down. Again remarkable even.

3.   Likelihood that a move would last 2 days or more were 24.8 % up and 24.9 % down.

4.   Less than 12.5% chance of a third day in any one direction happening.

Using these stats you can pretty accurately determine in which direction the next day will close.

If you want to learn more about this type of analysis you can read “Trading Strategies That Work” by Thomas Stidsman published by McGraw Hill. But be warned, this was by far the easiest set of calculations I ran through. The book is riddled with Excel and code for programming that can at times leave you dismayed. But for the adventurous it’s worth the effort.

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