For over a year now I have been studying on several pairs about their daily range. What led me to this study is basically to understand it’s constantly changing nature of every pair we trade. If we project a fixed TP of 100 pips for any method we use might not work in 2-3 years. People tend to blame our price projection unable to hit the target due to market start to range/choppy. And I believe, based on my limited knowledge on the matter, is SPOT ON. Like price, pair’s daily range flunctuates/change all the time. In 2009, GBPJPY daily range is between 300-350 pips a day. But now it’s been 150-200 pips only. Perhaps when u trade GBPJPY in 2009 set a TP at 280-320, you might have problems trading that in 2011 until this Friday.
I’ve manipulated the numbers (daily range) and calculated several ways to find an edge that we could use in our TP-ing elements in trading. How would you like if we can objectively project how much pips we want to catch the next day of trading? I do. I’ve found a way (subject to more tests ofcourse), mathematically, to objectively project how much pips we can catch for tomorrow’s market.
This isn’t exactly a calculation to project the whole range for next day, but projecting how we can ‘safely’ catch the price movement for tomorrow.
First of all, I find out the AVERAGE of the following averages (average daily range for the past 5 days, 10 days and 30 days : Average = (avg5days+avg10days+avg30days)/3 FOR EACH day. For eg say we trade on 09/03/2012, then we take the calculation of average range for the last 5 days, 10 days and 30 days.
The number is as follows (number for 09/03/2012) :
Average Range for past 5 days : 164.02 pips
Average Range for past 10 days :160.02 pips
Average Range for past 30 days :136.98 pips
Then we AVERAGE this three numbers as I stated earlier :
Average = 164.02 + 160.02 + 136.98 / 3
[B]= 153.74[/B]
I know you bet, that’s the projection? Nope… not yet. Once we got that number (153.74), we calculate it again based on fibonacci retracement. I’ve experimented with two retracement numbers, 0.618 and 0.786. The calculation as follows :
Projection 1 : 153.74*0.786 = 120.835 pips
Projection 2 : 153.74 * 0.618 = 95.00 pips
Then that’s range projection for next day.
In my spreadsheet I tested this number wether this range predict doesn’t come short (meaning projection is bigger than the actual range, basically if the actual range is bigger than projection, that is good news, meaning you will catch something!). If it comes short, i label it as ‘short days’, if projection hits the range, i label it as ‘hit days’
[U]The statistics so far :
[/U]
[B]61.8 projection 2009 til Friday 31/3/2012 :
total short days = 124 days
total hit days = 690 days
Percentage hit = 84%!![/B]
[B]78.6 projection 2009 til Friday 31/3/2012 :
total short days = 287 days
total hit days = 527 days
Percentage hit = 65% [/B]
This might look confusing I know. But this is good for breakout traders out there. Knowing these ‘projections’ you can objectively foresee wether price has over-extended it’s potential range for the day. For eg say there is a US session box breakout during asian session the next day, whilst the projection for the day (say 61.8%) is 110 pips, then during the confirmation breakout price has moved in range about 40 pips, then you can trade and TP at (110-40 = 80 pips) 80 pips.
I hope this study can help you guys trading this beast of a pair. I know this study has helped me trading other pairs.