Market normality

[Removed for Forums policy violation] changes in the log values of forex rates, price indices, and stock prices are assumed to be normally distributed!

I’ve got no evidence to argue with that, but its hard to see how it could be dependable enough to help trading across a few days or weeks per trade.

I find after an extraordinary move like those we saw on Friday that the chances are about 50:50 of either an early strong continuation of the move, followed by a hefty retracement, or a hefty retracement followed by late strong continuation of the move.

For me there is no greater probability of one over the other so I’m sitting out.


Hi Tommor and Mike
I would like to pose a question:
We know that the market can be in a risk-on or risk-off phase. During risk-on, for example, USD, JPY and CHF are strong and Comms are weak.
Are there any other identifiable distinct phases? For example, when EUR and GBP are strong which currencies do we expect to be weak - USD?
The reason I am asking this is to try to define some natural rhythms of the market to see if we can identify trends and ride the wave. And when the market is ranging or is not in one of the identifiable rhythmic states, we will stay out.

Really appreciate the work you put into your posts!

What are the natural rhythms of the market is exactly what we’re trying to pick out. Conclusions are tentative, partly because this sort of general analysis needs a lot of data, partly because the market itself reacts to itself. So even I myself and not 100% certain we’ll unlock a key secret. But at the least we can identify when extra caution might be needed.

Looking at this thread in combination with Dennis’s on the individual currencies’ strengths and weaknesses would be good - see Trading the Trend with Strong Weak Analysis

A trend-positive week, at 63%. Highest score since September, which is ironic considering the market tumult we’ve dived into more recently. And its a high score even amongst the positive weekly scores, most of them are well below this level.

The immediate result is some nice profits from trend-following positions I had trickled money into since Black Friday. The secondary result is I won’t enter any new entry orders this weekend, prefer to wait for trend retracements for opportunity.

For the wider market, where are we going? I think we continue, but less steeply. Commodities will fall, but not as fast, and I note oil is recovering: safe havens will be accumulated, but not as greedily. When trends are not so steep, frequent retracements offer good entries.

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Hey Tommor.

Positive week it is.
A look inside the numbers.

And this is why I do this. To see what the normal is, to begin with. Just look on the right. That’s looking at the market a week at a time (in the middle they’re broken down by the day). And so, what’s normal?

— The USD has all of their 7 Dollar pairs trending USD strong (20 over the 50 EMA). And if you want to see that progression, it’s there in the middle (days).

— On Monday you can see that 21 out of the 28 pairs trended in their normal state. 7 pairs ended the day in the opposite direction (non normal). This is in that top row.

— Summary - The week started out going head long strong normal. Great for the trend traders. Right Tommor?

— On Turn-around-Tuesday it went in the opposite direction. We can call it non normal. Or counter trending. Or just in the opposite direction of their trend.
But you can see that 11 pairs ended normal & the other 17 ended non normal.

— On Wednesday it goes by way of the same. 12 pairs ended in their trending direction and 18 ended opposite of their trend direction.

— Thursday, also, goes in the same way. This time is equally split. 14 pairs ending normal and 14 pairs not. So basically, these 3 days of the week went completely split down in the middle.

— Friday pretty much goes in the way Monday went. Most of the pairs went in the way of their trend. 18 trending. 10 counter trending.

  • USD — Maintains their strength this week. Top dog, with all of their 7 pairs trending USD strong.
  • CHF — Racks up 2 more pairs, from last weekend, strong. Now have 6 of their 7 pairs trending Swiss strong (again, 20 EMA over the 50 EMA).
  • CAD — No changing from last weekend. Have 5 of their 7 pairs CAD strong.
  • JPY — Got strong. It’s been in the works lately. This week on their respective Yen pairs changes from 1 to 4 pairs now JPY strong.
  • NZD — Been slipping big time. Last weekend they sat with 6 of their pairs trending strong down to 3 now only.
  • AUD — The same. Although weaker. Had 3 of their pairs strong but now only 2.
  • GBP — Lost a pair to 1 GBP pair now trending strong.
  • EUR — Weakest. They have no EUR pairs trending strong.

Just look at what the 3 safe haven currency’s have been doing. Getting stronger.
USD, CHF, JPY. Also the Comm currency’s have been getting weaker. All that speaks to a risk off sentiment.

My only point here is that what’s considered normal is always changing, to some extent. We’ve been moving more towards safe haven dominating over the risk on currency’s (Antipodeans).

And I agree with you Tommor, all this stuff that we talk about here is not really for a predictive tool. In fact, we’ve never even said so.

I know it’s a thing for new traders to want to know answers. Even without explanation. But that’s not what we’re doing here. Maybe one day they will come to understand the complexity of this market we are dealing with.

But I think it only makes sense, to start off with the knowledge of what the market is doing. In here, we’re simply looking at whether a currency pair ended a day in the direction of their respective trend (a.k.a. normal).

And our (I adopted yours) indicator is looking at the 20 EMA line and the 50 EMA line dynamic. This perspective is on the longer side of things. We’re more swing traders than anything.

All we’re doing is looking at this data.
It’s a starting point.
It’s knowledge.
It’s a dynamic.
It can be used as some kind of edge to build upon.
Especially those who trade according to trend.

For me personally, I look at this data just for the purpose of seeing what’s happening. I need to know what is. Amongst a lot of other perspectives. Like knowing what the aggregate is saying as opposed to any of the specific parts (pairs).

I don’t wrap this stuff around a strategy. Either for an entry, or exit.

But how in the world can someone trade in a market in which you don’t know what’s happening? Honestly.

This is foundational stuff. And you can’t get any simpler than knowing what’s normal and what’s not normal.

Now. If I wanted to, I have the opportunity, because of this data, to dive into the specific currency pairs to get some kind of indication of where this might be heading. After all, if you can get an idea of a direction something is heading, then you got a major part of the battle won. Cause I believe that’s the hardest part.

Now don’t get me wrong, there are many other factors to consider.

  • Where do you get in at?
  • When do you get in?
  • Where do you get out at?
  • When do you get out?
  • How much to put on? Too much or too little?
  • Rules that guide you in managing an open trade.
  • Protecting and managing the health of your account balance.

We’re not talking about that stuff. That’s what the school in B.P’s is all about.
All we’re trying to do is understand what the market is doing. In this perspective.

That is it.

The rest is up to you. Right?

My 2 cents.


That’s a great summary of where we are and what we’re trying to do Mike, good points raised here. I’d much rather spend time compiling this sort of data and reading this sort of summary than watching any amount of commentators on TV professing to know why this went up and this went down. Or even some learned business school summation of the maths involved in exponential averaging.

I’m very happy just to work out if I should be in the market or out, and if I’m in, what I should not be getting into right now, that will do for me.

Have a good weekend.


Hey Meza.
Sorry for this delay. But I did want to respond to your question.

I’m gonna divulge as much knowledge as I can for ya. Hopefully it’ll help in your understanding of it all.

— The most notable currencies are the AUD, NZD, CAD (a.k.a. Comms).

— The most notable currencies are the USD, CHF, JPY.

Risk-on & risk-off should be thought of as a seesaw. With one on one side with the other on the other side. It’s a dynamic. A perspective that the broad market tends to side with. One or the other.

Cause we all know that the reason why the participants are in it is to be making a profit. Making some money. Right? But in our market, with the currency’s, each of them have behind them a reason for why they are traded. It’s the fundamentals that drive them. Now I’m not talking about the technical side of things. Just the fundamental side. Cause that’s another topic of discussion.

But, you can get a sense of risk-on when you see the Comm currencies being bought up. Along with the safe haven currencies getting sold off. That means the money is more daring. It will take a chance with those horses. And there’s reasons for that, like the fact that they are the economies that have more growth to be had in comparison to where they’ve been. Basically, their up and coming nations. Cause where can you go when you’re already at the top?

And well, that’s the whole reason for the safe haven currencies. They’re at the top for a reason. It’s safer. Which is where the money will want to go when the fundamentals of the world turn ugly. It’s just playing it safe.

You can think of the stock markets in the same way. Think of it. In the equity markets, what are they doing, anyway? All their doing is putting their money there for growth only. It’s one way. Up. Not down. The stock markets want up only. That’s it. And that’s why when you have a risk-on sentiment the stock markets are moving higher. It’s common knowledge over there in that market. It’s the investors actually saying that I’ll invest in your company. And you better be getting more valued as time goes by. They want a return on their money. So therefore, the price of that company better move higher so they can get that higher return.

But when that market moves lower, who wants that? No one. Not the investors. Not the company’s. Not even the governments. No one. It’s a bad thing.

But…what’s most important to an investor?
Their capital.
Do you think they care more about what their invested in or what their account balance states?
They care more about where their money goes to.

So when they want more security they’ll move their money into the safer markets. Like the treasury markets.

But getting back to our market. It’s different. We’re not in a one way direction type dynamic, like the stock markets are. It’s much more complicated. The reasons why the investors (now we’re talking fundamentally here, only) buy a currency and sell a currency can take many different reasons. And one of those reasons can be divided into the risk-on, risk-off dynamic. That’s why you’ll hear many analysts frame it that way. Cause it is a truism.

But that doesn’t necessarily mean those are the only reasons why money goes there. You got to think about these other reasons why money moves in the way it does.

  • Technical analysis. All of the things pertaining to what the charts are saying. S/R levels. Overbought indicators. Volume. Any lines on the charts. Etc…

  • Interest rate differentials between 2 countries. How a broker needs to pay the difference at every EOD.

  • Political economic reasons. Think of Brexit. The USA and whoever is elected (think of the battle between Trump and Hillary back when he got elected Nov. '15.). Talk about the market flying.

Look. I can go on and on. In fact, some time ago I did some thorough research on all of the reasons why currency’s move. I should dig it out, from one of my notebooks that I done very much journaling on. I remember it very well. It is very informative, no doubt. But guess what? You want to know what I concluded?

It doesn’t matter what the reasons are, were, will be.
It doesn’t.
What matters more, is what’s trending. And even then, that’s a difficult thing to get a handle on. As what we find on this thread.

We simply want to go with the flow.

But I see you’re wanting to define some natural rhythms of the market.

You are definitely thinking Meza. Good job. You are on the hunt, and are thinking like a trader. Awesome.

But, you got to be a little more specific on what riding the wave means, to you. You got a beginning, the middle, and the end of a trend. You know how hard it is to know when a trend starts. Very. They say it’s practically impossible to pick tops and bottoms. That’s simply saying it’s hard to know when it begins and when it ends.

So they say it’s best to jump in on when it’s in the middle of trending. Right? That’s your best chance to be right on something.

So riding a trend needs to be explained pretty specifically. From my own experience, I’ll tell ya, that it doesn’t pay to try to be in it from the beginning to the end. The whipsaws are so detrimental, that in the long run the best you can do is only break even. It’s best to get real good at a specific part of the trend. Let’s see…you can break it down into the beginning, the middle, or the end. The beginning would be the bottom. Impossible to see until afterwards. The end would be the tops. Same thing. Impossible until it’s over. So all you got is the middle part, which is where you’ll have those boosts. Then retracements. Then boosts higher. It has to be that. Higher highs (for uptrends) and lower lows (for downtrends). The ranging criteria is hard to get right, I think. Therefore I don’t count that variable. It only makes things so much complicated.

Plus I’m not wrong in making everything either in an uptrend or downtrend. If something actually ranges, then I call that a retracement from the direction it’s going in, that’s all. Cause it’ll eventually either go back to the established trend direction (higher swing highs) or it’ll change that trend and go the other way (lower swing lows).

So, all I’m saying is that it’s better to get good, and practice, one specific dynamic of a trend. The problem is that there’s so much we don’t know until after the fact (hindsight). Always remember that, Meza. Don’t be deceived by where you think the market should be going. Know what the market is doing, first. Know for sure. Then act accordingly.

What do we know for sure?
Every trend has a beginning, a middle, and an end. We just don’t know for how long, on each of those aspects. Think of it. For a beginning, we don’t know until afterwards. Cause we can have a very long down trend. It can then range for a long time. Then we can think it’ll change into an uptrend. But it could very well be a fake out and just continue on it’s down trend. That’s why I say you don’t know until afterwards. Much afterwards. Like after it starts making higher highs. That takes time.

And the same things goes for the end of the trend. Think of a long uptrend. It doesn’t make higher highs anymore. It retraces. Or ranges for a time. Will look like a flag. But we are not going to know whether it will continue on that uptrend or not unless it starts making lower swing lows. That takes some time. So therefore, I’m saying, that we don’t know until after the fact on the starts and ends of a trend.

It’s almost impossible.

That’s why they say when it has started, technically speaking, your direction should be established. It’s all in the middle part of the trend. And even then, you got to be specific on how to trade that. Just after the retracements only? Or when it makes higher highs? Or only on the break and retests. Know what I mean?

Basically, you want to get good, very good, at one particular part of a trend. What else is there? Well, I told you, I tried the whole entire trend. Look. You can try it. Try surfing that surfboard higher and lower and hopefully in the end come out in profit. I found wayyyyy to much slippage. To much lost profits. It doesn’t pay. Trust me.

Sorry. Maybe I got off subject. But those are some things to think about when it comes to the specifics of trading something. Like a pair. On a chart.

But, you want help on exactly what to trade. Cause if you can determine correctly how the market is moving then your chances of picking a good pair helps matters, right?

Well, if you don’t mind, I’ll tell you how I go about this.
Talking about which pair to trade.

  • I look at the currency aggregate.
  • I determine their aggregate trend (will either be long or short).
  • Pick a long trending currency.
  • Pick a short trending currency.
  • Then it’s just a matter of time about WHEN to get into this trade, and WHEN to get out of this trade.

You can just use the cheat sheet from Dennis’ thread —

But as I keep looking at what you’re asking, your wanting to know about other identifiable distinct phases.

Well, as mentioned. And which I think is the best, most consensus driven one is the risk-on vs. risk-off sentiment. In fact, you previously said that the AUD/USD pair was the bell weather pair for that. That’s very correct. But the AUD/JPY is that also.


– Strongest against the weakest.

– The USD against anyone else. Cause that’s the most traded currency in the world today, volume wise. It is the worlds reserve currency.

– Correlations. That is how two particular currencies are related to one another. Examples are : EUR & CHF. USD & JPY. AUD & NZD. CAD & Oil. They are all known for riding similarly. This is not so easy. Correlations can be broken for such a long time. Be well prepared if you want to go this route.

– Majors against the Comms. Back in '16 I developed this system. I grouped the entire 8 currencies into those 2 groups. 5 against 3. 15 pairs. But it worked much better then because the CAD just does not always act as a commodity currency these days. It used to though.

– Interest rate differentials. Or whoever is poised to raise interest rates next. Cause that’ll affect what goes on in the bond markets. Remember, money wants to grow.

– Individual currency trends. That’s what I do. Look at the aggregate and boil it down to a pair. In fact, that’s exactly what the strongest to weakest is all about also.

I don’t know any other broad market tendencies. Money just wants to be accumulated, that’s all. And it’ll be done by moving in some kind of trend.

You got to look at the individual characteristics of a currency, and market sentiment. Most of the time that sentiment will fall under risk-off (safe) or risk-on (daring).
And even Bitcoin has proven to be a risk-on asset. All the money there is nothing but investors extra, play around type money. That should tell you something about how the world is today. There’s so much money around it’s not even funny.

Well, I’m sorry about all this. I know it’s a lot of nonsense.
Take what you can from any of this.
Throw the rest out.



The market is always changing and evolving both in the short term and the longer term.

In more recent times that change has accelerated - likely the effect of automated trading.

One example that I can think of is on this board - a thread started in 07 called the 3 ducks - a ‘system’ of TA that was created back in the late 90’s - long story but a member here authored that thread and the system was good - it worked and it worked well … until it no longer works.

As traders we likewise have to be willing to change and change is never easy :slight_smile:

Thanks Mike for your insightful posts.


hi im peter

Hi Deidre,

Still going with VW I see.

We spell it Deirdre over here - though your spelling remains true to the Irish - slender vowels i and e always between constants.

Sadly you are not Peter because the Irish is Peadar - broad vowels a,o and u likewise always between constants .

Cead mile failte ::slight_smile:

Thanks, Mike
I really appreciate your very detailed response.
I have a similar approach. That is, I try to identify the strongest and the weakest currency. As to which part of a trend - the middle part as you have suggested in the one. I think because we are pairing the strongest against the weakest, it should automatically put as somewhere close to what we call “the middle” of a trend. That is, we are getting in at a point where two currencies are moving away from each other and that move is gaining momentum.
As to the natural rhythms of the market, I completely agree with you re risk on and risk off.
You are correct, it is all about “following the money”. It would be good to look through the historic SW ranking data to see if we can spot something else that could be interesting. For example, Dennis always says that JPY likes to make a number of trips from 1 to 8 during a 12 months period…
It would be good to see if we can spot peculiarities about other currencies. For example, when is GBP likely to be number one and which currency is likely to be number eight at that time, or what would USD or EUR be doing at that point?


Hey Meza.

Wow. You think like I do.
That’s why I spend so much time recording all these currency’s on a daily basis. Cause I can always go back and see any kinds of relationships that might be.

This is probably the biggest aspect of what I do in this business of mine.
It’s all about relationships!

It’s a long road though.
Hope to see you all along the way Meza.



Hey Tommor.

I got some numbers to show.
And I’ll show, but as I was doing this I thought this would be the best way to present it.

This is some perspective of what’s been happening lately.

Top table is the daily single results. That’s looking at one day at a time.
Middle is the weekly running perspective. Seeing how the week plays out.
Bottom is the monthly context, all added up as it’s unraveling.

Most interesting notes.

  • AUD had a great week, biggest mover this week. +17.99%. Then look above to see that all that pretty much came in on the first 3 days of the week. They boomed out of the gate. As they led all of the Comm currency’s over all of the others.
  • The safe haven currency’s (JPY,CHF,USD) took the other end. With the JPY as the heaviest for the week (-10.78%).
  • Those 2 points in turn call this week a risk-on sentiment bias.
  • This is the complete opposite of last weeks results. All 3 safe havens were stronger than the 3 Comms. Risk-off sentiment week.

All that is a perspective. It’s simply looking at their aggregate % against one another. In the daily context. But when we look at the normality perspective, we’re seeing it slightly differently. We’re looking at their average of the last 20 days and comparing that to the last 50 days (hence 20 & 50 EMA 's). That’s a lot of days we’re taking into account. It’s a smoothing out of their strength. Remember, you just can’t turn a huge ship so quickly and easily. It takes time. That’s kind of how to see this indicator.

With that in mind, this is the normality perspective. Inside the numbers.

It definitely went counter normal this week. I got 41% there.
But look at what’s considered normal.
We’ve definitely moved into more of a risk-off sentiment. As it stands now, all 3 safe haven currencies are leading.

Are you seeing my point here?

Didn’t I just get done explaining, and showing, how the AUD had such a good week? Percentage wise?

But just look at how our indicator takes both the AUD and the NZD aggregate count down to last place. It’s been heading that way all along (that’s why I like to show multiple days of history).

My point here is that it takes much more than 3 great days (cough, AUD on Monday - Wednesday, cough) to change the tide.

Does this all of a sudden make the AUD a strong currency?

Is the safe haven currency’s weak now?

Not according to our 20 ema & 50 ema measuring stick metric. No way.
As I see it, we’re still separating the men from the boys.

Look. It’s all in what’s happening. I think it’s important to keep this stuff in it’s proper perspective.

Speaking of that, I thought this was interesting.
My right table. It’s the line up on the weekly time frame. Watch when I zoom out.
Check out how it’s been progressing, ever since Aug.


Well, I don’t know if you guys remember back in Aug when we were all talking about how the risk-off sentiment was on. I remember. I was mentioning how easy the market was showing us what was going on. It’s not always like this. I mean, you can see how the 3 safe havens are at the top (Aug 20th), and the Comms on the bottom. But just follow the progression ever since then.

The NZD starts moving up first. That was the first indicator of a change. I remember it so well. Then the Swiss started to fall pretty hard next. Then voila, come Oct 1st who’s on top and who’s on the bottom? Yep, those 2. Then what happens next? The JPY falls like a rock! Yeah, that was quick. And pretty much at the same time the other 2 Comms (AUD,CAD) get boosting higher and higher. Then the next thing you know all 3 of them are together at the top. That was when the USD slipped away lower.

But then the Dollar got strong (moving into the end of Nov). Quickly. That was what started to change things. And well, that caused the Comms to come down recently.

Look. It’s all there. All you have to do is follow any currency from the bottom, up. And then compare them, like I did. You know which ones should move in lock and step with one another. I always mention them. The 3 safe haven currencies (USD,JPY,CHF). And the 3 Comms (AUD,NZD,CAD). Well, that’s 6 of the 8 currency’s that we look at. There’s only 2 others. The EUR and the GBP.

The GBP is known to be a lone bull. They really move to their own song and dance. For the most part, that is. See, at one point, they were the world’s reserve currency, before the USD (back before WWII). So basically, they have some serious pull. Oh, and don’t forget, the financial capital of the world is London. That’s where the GBP resides. But in recent years, it’s been the Brexit situation that has some real impact on the currency.

And what about the EUR. Well, they don’t rock the boat all that much. I guess you can say that they are trying to be stable. They are known for taking the other side of the Pound. And also the USD. I guess their kind of in the middle. Look. I’m sorry that I don’t talk much about them. Probably because in all of my tables the EUR seems to always be in the middle. What can I say? Cause if they were on the ends (strongest or weakest) I would definitely mention that. But that’s usually not the case.

Everyone should know by now that the most preferred currency pair of them all is the EUR/USD. And in the respects of risk-on or risk-off, the USD will be the risk-off currency. The EUR will be the risk-on currency. So it is known more for as a risk-on currency than risk-off. I haven’t delve into that relationship all that much. But we need to remember that the EUR is a relatively new currency. It only began in 1999. I mean, compared to all the other ones, yes, it’s a baby. And they even say it’s a project in the making. I mean, can you force so many countries to work together? I’ve read up on a lot of this. It is the first of a concept. Trying to unionize many, many countries is a real feat. And they are continually trying to make it work. I guess if Italy and Greece can get through their hard times (debt troubles) and they are still all together, then maybe they can develop a very strong united currency. It’s taking a long time though. So far so good though. Right?


I’m sure Tommor can enlighten us on that stuff. After all, he lives there.
All I can remember is when the German Mark was 4 to 1 to the USD. I lived there for only 18 months, back in the 80’s. What a deal you can get if you wanted to buy a cookoo clock, back then. And of course my Trish was born and raised in Germany. For the first 11 years of her life. Other than that, that’s my only ties to Europe (but what I would do to live there now…I would love it).


Hopefully some of this stuff is interesting for reading.


Yeah, I get 38% normality score, which is near enough for agreement.

Its a serious back-lash to the last 2 (positive) weeks.

checking individual currencies next.

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Got the currencies in order here, from strongest at the top -

Of course, the buying is going on in AUD, CAD and NZD, its just that my trading strategy disregards short-term recent price moves.


This week has come out pretty positive in normality score, 67%. This is a good recovery or reaction from the previous week’s negative, 38%.

Its a high enough reading for expectations of a reaction back down into sub-50% levels for the last week before Christmas.

However, it is the last week before Christmas. Does that mean perhaps a more neutral market sentiment, with a final score around 50%, say in the range 47-53%?

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Hey Tommor.

Definitely positive.
Got 60%.

Well, this week went with practically no changes, to what’s considered normal.

There was one though, AUD & NZD (the 20 & 50 switched on the AUD/NZD pair). All they did was change places for the weakest.

I think it’s pretty cut and dry. For what’s normal you have the safe haven currencies as the strongest.

But look at what Monday produced. Only 4 of the 28 pairs went non normal. Boy, that’s very uncommon. Basically, just about every pair ended the day in their normal trend. I just looked back. There was only 2 other days this year that it was worse. Feb 24th (tied) and Jan 26th (1 pair abnormal).

And therefore, what we know to be normal, it ended up as a risk-off sentiment day. Very much so.
Interesting, I think.

But yeah Tommor. We’re coming into the last days of the year.
I can agree with you about some possible market neutral sentiment, to come.
But, something just came to mind. I read an article just yesterday about a very possible JPY buying coming. Their bonds are being bought up. And some other reasons. And I think that would make all kind sense, given what kind of year that currency had.

I’ve seen this before. At years end, and also during the turn of the year. They were calling it the fat finger. But when liquidity dry’s up, forget it. Some really monster moves are possible. Just be careful.

Other than that, I definitely agree with you Tommor.
We’ll see what happens.