It just hit me.
Hey Tommor.
I’m sorry.
This is your thread, and I just might have taken it off of subject.
If this ain’t your cup of tea, then we need to stop. Cause you do the fine job of giving us market normality on the weekends. And we just might not need anything else.
This is your play area.
Let me know what you think of this stuff anyway.
Mike
Hi Mike - Don’t stop posting here, your stuff is so stimulating and thoroughly thought-through.
There’s so much to think about here and I’m engaged in holidaying right now. But I aim to come back with some views or queries asap.
Best wishes,
Tom
Hi Mike
In relation to your question on the timeframe we are looking at with MM, the default setting is daily but it can be changed to any other interval (see setting in the top right corner).
I think I mentioned to you before that I follow Dennis’s SW ranking. All MM charts apart from the currency strength meter correlate pretty well with this.
I specifically like the currency strength chart. It shows that AUD was by far the weakest for the last 30 days and CHF and JPY the strongest. So, AUDCHF short or AUDJPY short would have made money. If you check the actual price charts you can definitely see that. For AUDCHF the price was trending down and below 20EMA basically from the beginning of July.
For AUDJPY, a very similar story, also from the beginning of July.
So, in hindsight, yes, we can see that. Could we have seen it on MM chart early? I think we could. For example, as you can see below for AUDCHF, two currencies are moving in the opposite direction from each other and the gap is getting wider.
IMO, this is what we need to be looking for.
Just to confirm with what you said Meza, I too follow Dennis’ SW ranking and I find it lines up pretty well with the MM Currency Strength Chart too (having only recently discovered it myself).
Excellent discussion and investigation going on here, I’m following with great interest! Thanks to everyone involved!
This is a massive oversimplification other factors contribute
Market normality this week came in at 72%. That’s the most positive weekly score I’ve seen (over 20 weeks). All 5 days this week were individually positive: that is also unique. We’ve now printed 7 consecutive positive days: that also is unique.
Two weeks ago I posted that we had come down to a 38% weekly score after a period of flip-flopping, positive-negative-positive etc. And I said a bit tentatively that such a low score could be an extreme, prior to a dramatic reversion towards positive. Well, it took some time to get started by I think we’ve clearly had the reversion -
8 of the next 10 days have been trend-following across the 28 major pairs
20 of the major pars have had a majority of trend-following days in the last 10
4 only were predominantly anti-trend.
From a “basket” point of view, taking trend-following positions in response to the very negative normality score of 38% has turned out to be very low risk.
Please note that I don’t now say that taking a basket of anti-trend positions now on the back of the very high normality score of 72% would be low risk.
OK, but which of us can hold positions in the 28 forex pairs like a basket? I’m in the UK so I don’t think I would have the margin from UK-based brokers. So can normality pin-point which pairs to prefer?
I’ll go over the spreadsheet and see what hits me.
Hello.
Let’s simplify the market, shall we?
This week went very normal. With the trend.
And it is this simple. If you have correctly determined what the market trend has been, then you would have known that this past week went accordingly. As opposed to the opposite. Specifically speaking, it was a risk-off sentiment week. Not risk-on.
Furthermore, if you traded this past week according to the trend, then you probably would have realized more profits than losses. It was that kind of week.
But we’re talking about 2 things here, for all that profit stuff to be true. First off, you have to know what the trend is. And be right about that. Not wrong. And since the market leaves behind it’s footprints, we can discover what’s been trending. Secondly, if need to be able to correctly follow a trend following strategy. But, if you just follow your brain and what you think the market should do as opposed to what the market is actually doing, then yeah, you would have missed out on much profits available this week. But hey, no one said trading is easy. Knowing what the market is doing, is.
Moving on.
I said this last weekend in here. I tried to put a summary to our analysis.
This is my latest numbers.
By how much? That’s what the figures inside mean. Strength. Its all relative. And I’ve got a weekly total amount (under each Fri). I don’t know how far back we would need to go to find anything close to the degree we had this week (probably last year during the beginning of COVID season).
I could go back and copy what we’ve been saying this month so far. But we’ve have been saying that the first couple weeks have been going quite negative, and we’re waiting on a positive swing towards normality, or trending action.
Well Tommor, we got dramatic this week. It just happened one week later than you wanted. That’s all.
Let’s look at exactly what happened this week, in detail.
Top table is the daily individual results. Bottom is the week running (just the daily’s added onto each other for a weekly cumulative amount).
Well, we need one more very important piece of data.
What is considered trending?
These current trends have been established since the month started.
And if anyone wants proof, I can show.
Ok Tommor. I see you just posted now.
I’ll ship this so you can see how we agree (hopefully).
Mike
This is just terrific Mike. I think we’re on the brink of understanding something very important.
Comparing the pairs and currencies’ performances over the last 2 weeks, and the previous 2 weeks.
The last 2 weeks saw 8 out of 10 days scoring positive normality, so most pairs moved with their respective trends.
In fact across those 10 days, just 4 pairs put in negative daily normality - 3 EUR pairs plus GBP/NZD.
Across the last 10 days, the most normal currency was AUD - all 7 major AUD pairs moved with-trend. Then JPY (6/7, no negatives), CHF (5/7, no negatives) and USD (5/7, no negatives).
EUR pairs were the weakest, making 3 positive performances, 3 negative and 1 neutral.
Which is all interesting, but was it predictable?
Over the preceding 10 days, the market scored negative normality on 7 out of 10 days. Only AUD and NZD pairs scored positive normality, the others were all negative. So AUD and NZD were positive and stayed positive, while all the others reverted to normality: meanwhile JPY went from 8th to 2nd place out of the 8 currencies, while USD went from 7th to joint 3rd. So its just possible to say that a currency that is normal in abnormal times just gest more so when normality resumes, while a currency which is very abnormal reverts to normality with more energy. By the same token, currencies which are not extremely negative don’t become extremely positive when normality resumes.
Maybe this points towards some pairs that would have made the ideal targets for a reversion-to-trend-following play 2 weeks ago, but it doesn’t really give me much confidence. However the greatest % price movements in the last 2 weeks came from, in descending order -
AUD/JPY
AUD/USD
NZD/JPY
AUD/CHF
EUR/AUD
CAD/JPY
NZD/USD
You could say 6 of the biggest 7 movers were continuations; you could also say that 5 out of the 7 were reversion moves. But in % terms the AUD and NZD continuations win it, especially AUD, and more especially AUD/JPY. I don’t think anything on the AUD/JPY chart seen in isolation 2 weeks ago would have given a clue that it was about to drop 3.44%, but perhaps looking at normality might have been a clue.
Maybe some simple rules would be practicable and useful.
When the forex market is moving anti-trend, be in cash.
When the forex market reaches an extreme anti-trend condition at the end of a measuring period, get into the trend formed by the most normal currency v’s the most abnormal currency.
Stay in the trend as long as it lasts or until the forex market becomes anti-trend again.
Your statement implies that it is possible to identify periods when market is in trend as signal ignorer won’t be triggered in this market state. However this is debatable if we consider market as random process which is true in majority if not in all cases.
I’m sure I’d have to see more evidence before I accepted that the forex market is random.
Notably low normality score yesterday - 14%. Which means that only 4 out of the 28 major pairs moved in line with their underlying long-term trends.
This is a small-scale observation but interesting that an unusually low daily score follows right after an unusually high weekly score. Maybe just another demonstration of how the forex market tends towards mean-reversion. It certainly underlines that fundamentals don’t rule every day’s price changes.
I don’t often post here on a daily update basis but this week is more interesting than usual. Both Monday and Tuesday scored extremely low normality, both just 14%. This has the look of an immediate reversion away from last week’s extreme high score: although I don’t go for counter-trend trades, aggressive traders might have done well this week already.
Can’t wait for today’s score to come in.
Yeah Tommor, I totally agree. What a non normal week so far.
It has been a risk on sentiment week. Both days.
Which means the risk off sentiment, which is the prevailing trend, has been taken over.
Mid week now, seems like we’re at a lull. I guess money is trying to figure out where to go next.
Back to the risk on? ( the week so far)
Back to risk off? (Prevailing trend)
Mike
Hey Tommor, guys.
Well, I’m doing it.
I’m not done yet, but I’m gonna get there.
Tommor, I went back and seen exactly what you are looking at, in regards to normality. Well, at first, I wondered how many different ways there are possible in which says what’s normal and non normal. All you got to do is find what’s trending, in a particular context. And then monitor what the market does and compare.
But, then, I thought, why don’t I see exactly how you are doing it. And that’s where I began.
I do like the idea of looking at all of the parts first. I think that’s a good base. And that is where you are at. But you should know me by now. I do like aggregate. Bigger picture stuff. That can all come later on if I want. But, for now, I want to start looking at your numbers, and get acquainted with your method.
So basically, I just wanted to chime in here and let you know of what I’m presently diving into. I’m starting out by collecting all the data for this year. Each pair. And then I’ll get into the grouping and compartmentalizing of all that stuff.
I’ve just started. It shouldn’t take all that long. The power of excel is amazing. But this is a little of what I got so far. Tell me if I’m on the right track.
This is the latest on these 2 currency pairs.
Well, this is only the first 2 pairs. I got 26 more to go. But, I picked this structure so that I can group the currencies into their aggregates (it’s the same thing that I do on something else…I think it’ll work good).
Alright Tommor, I think we’ll be on the same page now. I’m very curious to see all of this in-depth normality data.
I’ll catch up to you later on this.
Mike
Good thorough work Mike, just as I should have expected. You’ve not picked a short easy road but you will definitely know the route.
Well, I had the week ending 06/08 as an extreme low in normality with a 38% score but we have just gone lower, making only 29% this week. This is the lowest score in 21 weeks, despite a very high daily score on Thursday of 75%.
As has been mentioned above, we are in a determined risk-on phase - for confirmation see that the Nasdaq has broken upwards and made a new all-time high.
Actually, this week’s low score should perhaps be seen not as a continuation but as a reversion away from the highest-since-records-began 72% weekly score printed the prior week. Again its possible to suggest we’re going to see some brilliant opportunities for with-trend trades across the next 2 weeks - but with stocks flagging up such bullish sentiment in the markets, I’m thinking we haven’t seen the last risk-on moves in forex.
What could de-rail this cycle? Perhaps a resurgence of military and naval actions in the Gulf region on the back of the fall of the Kabul government? - many players might be happy to jostle for a new position.
Alright Tommor, let’s compare apples with apples.
I might be able to help visually here.
Very interesting stuff.
There’s a lot of different ways I can present this data. But I’ll try to keep with the subject. Normality.
I’ll explain the total numbers (bottom).
In green is how many currency pairs went with the trend (normal) for that day.
In red is how many currency pairs went against the trend (non normal) for that day.
Below that is just the %. All I did was divide the green number (normal) by 56. This is shown up there in that white long box (=fx581/56).
Regarding normality, yep, you can see that Thurs was the only normal day this week. Also you can get a good sense of how lopsided the days were just by how many pairs were in the red (counter trended).
Surely I can group these days into their weeks. But I’m just gonna start out small for now.
Here’s another dynamic.
I’m comparing last Friday’s standings to now.
Every currency has 7 common pairs. Right? This shows how many pairs are trending long. Hence green. So basically, there wasn’t any changes in this last week. Meaning, the JPY is trending high against all of their 7 Yen pairs. More specifically, the 20 EMA is below the 50 EMA on each of those pairs. That means their trending high.
The JPY is the strongest currency, in this particular context, than all of the others.
Well, you see the line up there. And what I am seeing is all of the safe haven currency’s are at the top 3 spots. That tells us that the prevailing market environment slants towards the risk off sentiment. It’s confirmed, also, by the last 3 currency’s being the Comms.
I think it’s important to know what market environment we are currently in.
That’s the purpose of that line up.
Remember.
We can’t know whether we are in normal mode or non normal mode unless we know this first.
Well then, I’ll work my way down. On what happened this week.
The JPY.
This is their summary.
7 currency pairs trending high (green).
Space
Number of their currency pairs that trended with the trend that day. In green.
Just look at those numbers. In the first 3 days of the week, boy, hardly any Yen pairs went with their respective long direction. All went the other way. Then on Wed, each and every JPY pair resulted negative. But then on Thursday, yeah, all 5 of them went back to trending in their normal trend, which is a strong JPY. 2 pairs didn’t go that way. But then, on Fri, back to the non normal way that the week was going.
Look. I like this view cause even though a day might go against the trend (happens all the time), it doesn’t necessarily change the prevailing trend that’s already established. Like, it’s not turning the longer stated trend direction. That should tell us that, up until now, we don’t need to be getting all that excited and thinking things are changing. Not yet anyway. Now when that number starts dropping, then we can start worrying. I think that’s a dynamic we need to keep an eye on. Just think of it as strength.
Here’s a look at the particulars of them this week.
— The currency that’s favored, to the 20 EMA.
— How many pips are between the 20 & 50 EMA’s.
— How the day resulted, regarding normality. Green = with the trend. Red = not.
Remember how Thursday was a great day for them? Well here, we can see that the USD and the EUR were stronger than them that day. Makes sense. It was a Major kind of day.
But take a glance at how the JPY has been doing against the Comms (bottom 3). Look in the purple color. That’s the amount of pips between the 20, 50 EMA’s. You can definitely see the decline, on all of them. So therefore, trivia for ya…Which currency (if it happens) will be the first to change the prevailing direction?
Hint. Look at the spread of the 20, 50 lines. Who’s the thinnest? Out of those 3.
The NZD. There’s only 43 pips until that change over.
Next would be the CAD. There’s only 60 pips till that change over.
The AUD has 107 pips till the 20 EMA can go up and over the 50.
That’s nice. I know.
Like I said, there’s a lot of info here that I would love to get into.
I do love details. And here’s where I can find them.
Let’s back up a little. And move on to another currency.
Let’s see, who else is interesting?
The NZD.
The bottom right here is the summary. From all up above it.
You can easily see that regarding the other 2 Comms they had a lot of trending resulting days this week. Lots of green on the AUD/NZD, NZD/CAD.
Well, I’m running out of time.
I got to cut this short (I know, probably a relief).
I would like to do a summary on each of the currency’s, in the aggregate sense, but I just don’t have the time at the moment. Got to go.
I’ll come back later on this weekend.
Mike
P.S. — If there are any questions, please ask away.
