A Forex View From Afar

Price Distribution For The Euro

According to the data compiled from 2006 to the present day, the euro follows a relatively normal distribution. This means, an investor can determine, to some extent, how much the price will move over the following period, in order to gauge risk and determine the possible duration of a trade.

The attached charts show the probability that the close of the next 15 min, 4 hour or daily candle will be bigger than one half of a standard deviation. For example, there is a 70% chance, or one standard deviation that the euro will move ±10 pips over the next 15 min candle.

Knowing this, a trader or a system developer can very easily calculate the exposure to the market, or estimate how long an open order will last. If someone has a 70 pip stop loss, based on the 4 hour chart there is 5% chance, or even smaller, that the market will hit the Stop Loss within the current candle. This is useful when trying to avoid a release, or avoiding a specific time (U.S. open for example)

No Comment | Posted in » forex, retail forex