What happens when one of the major currency pairs moves 10 pips? 25 pips? 50 pips? How likely is it that it will continue for 10 more pips? 20 more? 50 more?
I am giving this study (see PDF document) as i think it might inspire some of you to do something similar for the Futures market. If by any chance one of you make a similar study then it would be cool if you'd make it available to other members here. I got this document two years ago when i was trading the Forex market and found it extremely interesting statistically speaking. -Trendisyourfriend
The goal of this study is to arm the trader with more information about price action than is currently available. When a trade has moved 10 pips in your favor, what is the general probability that it will continue to another level? We believe this is valuable information for all traders.
However, there are a number of caveats that we feel compelled to state:
These probabilities are by no means hard and fast rules for trading. They represent a snapshot of data, some longer than others, and employ a very specific entry strategy which may be difficult to replicate in live manual trading.
These probabilities are affected by seasonality and many other statistical conditions that may render them inaccurate in specific trading situations. In general, the shorter the interval, the greater the chance for these anomalies to occur.
No representation is made regarding the accuracy of the prices used in this study or the probability values that result. We reiterate: this report is intended to enlighten the traders sense of the market, not inform any specific trading application.
We used a "trigger value" to set the entry condition for each simulated trade. To do this, we took each interval close and observed the next 24 intervals. If the trigger was hit in either direction, we entered the market. From that point we measured the probability of hitting our continuation price targets within the 24 periods.