Euro Dollar Price Action Biases At Weekly Extremes
2 studies are presented in this article. Let’s get started.
It is well known that the range of a trading period (i.e. a month, a week, a day), is highly correlated to the range of the trading period right after. The lesser known fact is that the extremes of the trading period are also great reference price levels with distinct statistical bias. Each instrument would have its own unique statistical profile that we can utilize in making our trading decisions.
Swing Bias In Terms of Previous Week Range
First, let’s look at the probability of price reaching a certain percentage of previous week range above previous week high and below previous week low.
Given a week open within previous week range, the following table shows the statistics collected over 500 weeks.
In Table 1, the first line tells us that after a week opened within previous week range, there is a 33.1% chance of reaching previous week high plus 20% of the previous week range.
This information alone does not tell us much so far but the second line gets a lot more interesting. Once Euro has been able to trade at previous week high plus 20% of previous week range, it has a 70.9% chance of going higher to previous week high plus 40% of previous week range. The third line in the table tells us that the chance of reaching 60% dropped drastically to 45.5%. For the price to move to 80%, the chance dropped to just 30.9%.
If you are not excited by this information yet, let me write this in plain English.
First, a week that open within previous week range and traded through 20% above previous week high will very likely trade at the 40% mark as well. This is a roadmap for breakout trade.
Second, a week that open within previous week range and traded through 60% above previous week high will be unlikely to trade at the 80% mark. This is a great precondition for counter-trend trading setup.
In Table 2, the first line tells us that for weeks opening within previous week range, only 24.9% of the time price would go below previous week low by 20% of previous week range.
But once that 20% mark is tagged, there is a 63.7% chance you will see the 40% mark. Although it is not as strong as the long side bias, it is still strong enough to watch out for should you choose to pick bottom.
Note how 50% expansion of previous week range has been the line in the sand capping the weekly moves. In a way, the actual statistics from the data confirms STOPD’s principles.
Daytrading Bias In Terms of Pips
Similar to the statistics presented above, the following 2 tables show the statistics using exact number of pips away from the extremes. Notice how strong the biases are.