Tuesday, October 28, 2014

Further research on USDJPY's daily highs and lows

My research on the USDJPY's daily highs and lows has become very substantial. I've examined 509 days, from 7 Nov 2012 to yesterday (27 Oct 2014).

This is the distribution of the currency pair's daily highs and lows, sorted by hour. The distribution is heavily skewered towards the pre-Tokyo session, and the first few hours of the Tokyo session itself. The next significant cluster of daily highs and lows is around the European / US session overlap. I assume this is when the large Tokyo day positions are closed, taking advantage of the rush of liquidity from US and European customers. 

What is the probability of finding a daily high OR low within each hour?


The results of the table above is substantially different than the table in my previous entry, where I made a mathematical mistake (it's hard to explain - basically the table in my previous entry measured the distribution of daily highs and lows for each hour, rather than the probability of finding a daily high or low for each hour. For example, while the distribution of daily highs and lows should be roughly 50% for the first half of the day, and 50% for the later half of the day, the probability of finding a daily high or low in the first half of the day should be close to 100%. Likewise, the probability of finding a daily high or low in the later half of the day should be close to 100%). 

How can we use this information? As mentioned in my previous post, if you're day-trading, opening a position in the first 4 hours of the day would seem to be your best bet. You can probably design a system on the 4H timeframe, entering on the break of the first 4H candle of the day, with your SL on the opposite end of the candle (there's an approx. ~58% chance that the opposite end will be the day's high or low). Where you set your reward - that's for you to find out. :)

My statistics maths is a little fuzzy, but I believe the table above is correct. 

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