Monday, September 28, 2015

RESEARCH: AUDUSD Decisiveness on the 4H timeframe

I spent the last few days researching the behaviour of the AUDUSD on the 4H timeframe. Specifically, I was looking at how "decisive" price movement was throughout the day. 

I measure "decisiveness" by dividing the size of the candle's body by the candle's range (so decisiveness = candle body / candle range). Price movement on a full-bodied candle is more decisive than a doji, as price moved in one direction in the full-bodied candle, while it moved up and down in the doji. Examples are below:

Using the formula [decisiveness = candle body / candle range], I tried to measure the average "decisiveness" for every 4H block of time (00:00, 04:00. 08:00 etc), with 00:00 being the NY Close. My data stemmed back to August 2011, and was sourced from IC Markets.

The results:

My interpretation

We see that the average range increases throughout the day, until it hits 20:00, which is after London closes. However, it will tend to move decisively (i.e. in one direction) most often during 04:00 and 08:00, during the Sydney and Tokyo sessions, but only by a bit. My guess is that this is where Australian news will often be released. Decisiveness also increases marginally at 16:00, which I assume is also when most US news is also released. 

Can the info above be used to develop a system? By itself, probably not. But I think it can be useful as a component of intra-day trading. So, for example, you may prefer to use stop entries during 04:00 and 08:00, and limit entries during 12:00 and 20:00. But those are just my thoughts.

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