For those of you who have not seen some of my other posts I am a computer programmer that has access to a Forex API which means I have a lot of data at my fingertips and the ability to analyse it easily. I have been doing a bit more statistical analysis and I may have come up with something useful. I was looking at the ability to predict the direction of the next candlestick, not magnitude, just direction.

Experiment 1

I just counted the number of up vs down candlesticks over the maximum number of days that the OANDA API lets me go back (5000). The result is pretty much a 50/50 split between up and down.

Experiment 2

Using a moving average I counted the number of times the candlesticks matched the price being above or below the moving average. I went from 2 to 50 days for the moving average, sma and ema and I found that the split was 50/50. In other words, being above or below the moving average had no effect on the direction of the candlestick.

Experiment 3

Using various candlestick patterns I found that after various patterns the next candlestick has a 50/50 chance of being up or down.

Experiment 4 - The interesting one.

Using RSI I found that if the RSI (periods 5) is below 50 then the up/down split for the next candle is about 60/40. Yes that is right, 60% of the time over the last 5000 daily candles the RSI has predicted the direction of the next candle. I checked and double checked the calculations and everything seems to be right.

I am going to be testing this RSI signal on a demo account to see if it works in real life.