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.
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The xxxUSD group (GBPUSD, EURUSD, AUDUSD, NZDUSD) and the USDxxx group (USDCHF, USDJPY, USDCAD)
Correct: 7 USD pairs …
…”We’re analyzing 8 currencies…”: Really?
… consisting of 8 different currencies (including USD) – that’s all I stated. Yes, really!
Hmmm: maybe we should arbitrarily flatten that resulting USD line and let the other 7 dance around … and maybe I’m just kidding …
both groups are inverse-correlated …
Sure: heavy-weight USD will take care for that!
… and should have a matching MAJOR swing.
That would be a USD swing against the rest of the world, right? And thus reflecting that famous nearly 50 % trade volume of USD in the FX market?
s.
A good trader is a realist who wants to grab a chunk from the body of a trend, leaving top- and bottom-fishing to people on an ego trip. (Dr. Alexander Elder)
There are only two groups of currency-pairs: The xxxUSD group (GBPUSD, EURUSD, AUDUSD, NZDUSD) and the USDxxx group (USDCHF, USDJPY, USDCAD)
One more question comes to my mind: would it affect your analysis if all USD pairs were xxxUSD or all were USDxxx? I mean, affect the algorithm to a greater extent than only changing some ‘+’ operator in a ‘-‘ operator or vice versa.
A good trader is a realist who wants to grab a chunk from the body of a trend, leaving top- and bottom-fishing to people on an ego trip. (Dr. Alexander Elder)
The xxxUSD group (GBPUSD, EURUSD, AUDUSD, NZDUSD) and the USDxxx group (USDCHF, USDJPY, USDCAD)
Correct: 7 USD pairs …
…”We’re analyzing 8 currencies…”: Really?
… consisting of 8 different currencies (including USD) – that’s all I stated. Yes, really! Hmmm: maybe we should arbitrarily flatten that resulting USD line and let the other 7 dance around … and maybe I’m just kidding …
both groups are inverse-correlated …
Sure: heavy-weight USD will take care for that!
… and should have a matching MAJOR swing.
That would be a We’re analyzing 8 currencies, right? And thus reflecting that famous nearly 50 % trade volume of USD in the FX market? s.
USD is THE common denominator. It exist in each and every major currency-pair.
If you want a TRUE, effective, and most importantly LOGICAL “reset” or “anchor” – that’s the one.
G.
Hmmm: maybe we should arbitrarily flatten that resulting USD line and let the other 7 dance around … and maybe I’m just kidding …
I wanted to tell you to do the same thing :) As was done in fxcorrelator with the 20 moving average, that’s the zero line.
USD is THE common denominator. It exist in each and every major currency-pair. If you want a TRUE, effective, and most importantly LOGICAL “reset” or “anchor” – that’s the one.
Forex is actually dollar centric (at least for now … then when we get the yuan will see …). So the idea of seeing other currencies dance around is not entirely wrong.
‘Reality’ is the keyword here. Absolute pips haven’t got anything to do with ‘reality’, IMO. Pure pips counting is one of the worst things to do when analyzing moves. Just look at my 1st pic (the spreadsheet): 48 pips in both cases, yet 0.42% total change in one case, 0.70% in the other one. So the average rate of change of that move has to be considerably larger for NZD, as compared to EUR. Any error in that calculation? Did I hit your example correctly? That’s what I meant by ‘works as designed’: at the moment, it’s PURE ROC, nothing more.
Absolutely correct.
Thanks to the further clarification that allowed me to see with other eyes your indicators for a deeper understanding. I lost for a moment the big picture. So if I look at the percentages, the strongest should be EUR and it seems correct if I look at EURNZD chart. Also noted that the magenta diff is ( obviously but not so evident at a first look ) ROC (2) of EURNZD.The USD is the most powerful tool when selecting trade direction for the 7 majors.
I researched and proved it years ago, using external statistical tools.
It also should be used for “reset” (if you want to use one).
BUT it needs an accurate Currency-Strength indicator, which should be based on accurate and correct method of calculating the “Delta” – the amount of movement from current bar to the previous one.
I have my doubts about your way of calculating it, although its much better than FXCorrelator naive way.
When Source-code is released and I’ll get some spare time – I’ll review it and comment.
G.
Hmmm: maybe we should arbitrarily flatten that resulting USD line and let the other 7 dance around … and maybe I’m just kidding …
I wanted to tell you to do the same thing :) As was done in fxcorrelator with the 20 moving average, that’s the zero line.
USD is THE common denominator. It exist in each and every major currency-pair. If you want a TRUE, effective, and most importantly LOGICAL “reset” or “anchor” – that’s the one.
Forex is actually dollar centric (at least for now … then when we get the yuan will see …). So the idea of seeing other currencies dance around is not entirely wrong.
If you “Flatten” the USD you’re going to loose the “swing” points.
G.
I lost for a moment the big picture.
Hahaaa – sometimes I doubt that I have it!
A good trader is a realist who wants to grab a chunk from the body of a trend, leaving top- and bottom-fishing to people on an ego trip. (Dr. Alexander Elder)
When Source-code is released and I’ll get some spare time – I’ll review it and comment.
Thanks for your kind offer. Makes no sense to release the latest source at the moment – too many half-raw features which I’m still working on.
But the core algorithm has not been changed since version 1.1, source see this post: http://penguintraders.com/forums/topic/a-flexible-and-compact-currency-strength-indicator/page/2/#post-8262
s.
A good trader is a realist who wants to grab a chunk from the body of a trend, leaving top- and bottom-fishing to people on an ego trip. (Dr. Alexander Elder)
When Source-code is released and I’ll get some spare time – I’ll review it and comment.
Thanks for your kind offer. Makes no sense to release the latest source at the moment – too many half-raw features which I’m still working on. But the core algorithm has not been changed since version 1.1, source see this post: http://penguintraders.com/forums/topic/a-flexible-and-compact-currency-strength-indicator/page/2/#post-8262 s.
The attached is MY view of Currency-Strength at some theoretic point in time.
If your calculations of the DELTA is indeed only ROC based – the GBP is the strongest (and the CS indicator line will show that), even if the GBP end point is below “0”.
IMHO, That’s a wrong view of the market.
That’s why I have my doubts.
G.
If you “Flatten” the USD you’re going to loose the “swing” points.
Sorry but I can not visualize in my mind this concept, can you help me with a sketch?
Anyway maybe I can see something else more important, I don’t know, I need to see it and see how it works. For example, perhaps , looking at your picture we could consider the rising angle between USD zero line and other currencies, bigger angle, more strength … maybe.
If you “Flatten” the USD you’re going to loose the “swing” points.
Sorry but I can not visualize in my mind this concept, can you help me with a sketch? Anyway maybe I can see something else more important, I don’t know, I need to see it and see how it works. For example, perhaps , looking at your picture we could consider the rising angle between USD zero line and other currencies, bigger angle, more strength … maybe.
Flattening the USD was simplex idea or “joke” in the qouted previous post- and the above is my response to that. In short – Don’t do that.
G.
Flattening the USD was simplex idea or “joke” in the qouted previous post
Ok, maybe I shoudn’t be kidding around and instead go back to serious business …
The attached is MY view of Currency-Strength at some theoretic point in time. If your calculations of the DELTA is indeed only ROC based – the GBP is the strongest (and the CS indicator line will show that), even if the GBP end point is below “0”. IMHO, That’s a wrong view of the market. That’s why I have my doubts.
Now let’s get my view on the DELTA a bit clearer. It seems to me that I did not state my view precisely in previous posts. I assume the DELTA you’re talkling about is the delta of currency strength. Correct?
CS, based on pure ROC, reflects the 1st derivative of prices over time, a delta of prices (velocity would be the mechanical analogon).
Hence delta of CS levels would reflect the 2nd derivative of prices over time (mechanics: acceleration).
I really do believe, that the two of us are agreed in the sense that if you do NOT apply any final smoothing, the 1st derivative rules, and the 2nd shows an additional aspect (you stated that in a different post, in other word, at least that’s how I understood your words).
Now the more final smoothing you’re applying, the more important that 2nd derivative will be for your trading decisions. And the longer I experiment with that final smoothing, the more an insight is forming that a ‘heavy’ smoothing will look ‘nice’ on screen, while reducing precision and making the interpretation of the indicator more difficult. And I mean algorithmic interpretation in this case, not the visual one. Visually, the unsmoothed CS indicator looks terrible, while smoothing lets it look nicer for our eyes, thus leading to the belief that smoothing would be enhancing the indicator.
Does that make sense to you?
At the moment, I would opt for a light final smoothing, with high reactivity and adding only minimum lag. The impact of such light smoothing as compared to no smoothing would have to be tested in practice.
s.
A good trader is a realist who wants to grab a chunk from the body of a trend, leaving top- and bottom-fishing to people on an ego trip. (Dr. Alexander Elder)
Flattening the USD was simplex idea or “joke” in the qouted previous post
Ok, maybe I shoudn’t be kidding around and instead go back to serious business …
The attached is MY view of Currency-Strength at some theoretic point in time. If your calculations of the DELTA is indeed only ROC based – the GBP is the strongest (and the CS indicator line will show that), even if the GBP end point is below “0”. IMHO, That’s a wrong view of the market. That’s why I have my doubts.
Now let’s get my view on the DELTA a bit clearer. It seems to me that I did not state my view precisely in previous posts. I assume the DELTA you’re talkling about is the delta of currency strength. Correct? CS, based on pure ROC, reflects the 1st derivative of prices over time, a delta of prices (velocity would be the mechanical analogon). Hence delta of CS levels would reflect the 2nd derivative of prices over time (mechanics: acceleration). I really do believe, that the two of us are agreed in the sense that if you do NOT apply any final smoothing, the 1st derivative rules, and the 2nd shows an additional aspect (you stated that in a different post, in other word, at least that’s how I understood your words). Now the more final smoothing you’re applying, the more important that 2nd derivative will be for your trading decisions. And the longer I experiment with that final smoothing, the more an insight is forming that a ‘heavy’ smoothing will look ‘nice’ on screen, while reducing precision and making the interpretation of the indicator more difficult. And I mean algorithmic interpretation in this case, not the visual one. Visually, the unsmoothed CS indicator looks terrible, while smoothing lets it look nicer for our eyes, thus leading to the belief that smoothing would be enhancing the indicator. Does that make sense to you? At the moment, I would opt for a light final smoothing, with high reactivity and adding only minimum lag. The impact of such light smoothing as compared to no smoothing would have to be tested in practice. s.
I think that we should leave the semantics aside, for the moment.
In my picture of EUR/GBP/USD – calculating by ROC the GBP is the strongest if viewd in line indicator. That is WRONG – IMHO.
In my example of 3 cars located at different locations on the road – according to same above logic: the currently fastest one is also the first one, although we all can see that this is not the case. That is also wrong visual representation – IMHO.
G.
I think that we should leave the semantics aside, for the moment.
Semantics? I ‘tried’ to add a little more precision to our discussion, only to avoid further misunderstandings. Maybe I failed. Sorry if so.
In my picture of EUR/GBP/USD – calculating by ROC the GBP is the strongest if viewd in line indicator. That is WRONG – IMHO. In my example of 3 cars located at different locations on the road – according to same above logic: the currently fastest one is also the first one, although we all can see that this is not the case. That is also wrong visual representation – IMHO.
You named it: visual representation. Those lines are a graphic visualization of our model, nothing more. That visualization can easily be shifted to the next level of derivation without altering the model, if you prefer so, only I’m convinced that this wouldn’t be useful in our case. There’s no right or wrong here, but there can be a greater or lesser level of usability, depends on what you’re up to interpreting the model.
And to some extent, it’s only a matter of personal preference. And I would never claim that my preference is best for everybody, it’s just my preference. And I’m willing to change my point of view at any time, if I see the point to do so.
Again: I strongly do believe that we have the same understanding about the basic interpretation of our simple ROC based CS model. We’re using different words, though, and you claim to have some substantial additions (correct method of calculating the “Delta”) for that model in store, which makes perfect sense for me.
s.
A good trader is a realist who wants to grab a chunk from the body of a trend, leaving top- and bottom-fishing to people on an ego trip. (Dr. Alexander Elder)
You claim that we are basically doing the same, and just using different words.
In this case, I don’t want to add any more “clutter” to this thread.
Other than that, I claim nothing.
G.
Other than that, I claim nothing.
BUT it needs an accurate Currency-Strength indicator, which should be based on accurate and correct method of calculating the “Delta” – the amount of movement from current bar to the previous one. I have my doubts about your way of calculating it, although its much better than FXCorrelator naive way.
Sorry if my term ‘claim’ upsets you. That was not my intention. Let’s say ‘post’ instead, ok?
It was your above post I’m referring to (2nd quote).
s.
EDIT: And I never perceived your posts in this thread as ‘clutter’.
A good trader is a realist who wants to grab a chunk from the body of a trend, leaving top- and bottom-fishing to people on an ego trip. (Dr. Alexander Elder)
Other than that, I claim nothing.
BUT it needs an accurate Currency-Strength indicator, which should be based on accurate and correct method of calculating the “Delta” – the amount of movement from current bar to the previous one. I have my doubts about your way of calculating it, although its much better than FXCorrelator naive way.
Sorry if my term ‘claim’ upsets you. That was not my intention. Let’s say ‘post’ instead, ok? It was your above post I’m referring to (2nd quote). s. EDIT: And I never perceived your posts in this thread as ‘clutter’.
In one of your previous post you explained how 0.1% increase/decrease in one pair is equal to 0.1% increase/decrease in some other pair (from your ROC point of view).
Well, let’s consider USD interest rate at 1%, and NZD interest rate at 3%.
Now assume that each one will increase by 10% (or by 0.1)…
My DIFF or DELTA will increase (from 2 to 2.2) – yours remains the same.
G.
In one of your previous post you explained how 0.1% increase/decrease in one pair is equal to 0.1% increase/decrease in some other pair (from your ROC point of view).
That’s true!
Well, let’s consider USD interest rate at 1%, and NZD interest rate at 3%. Now assume that each one will increase by 10% (or by 0.1)… My DIFF or DELTA will increase (from 2 to 2.2) – yours remains the same.
Allright: at least for me, this is a completely new argument in our discussion. As you know from my source code, until now I did not consider interest rates when calculating my ROC-based CS, but you can bet I’m interested. Thank you for pointing me in that direction!
I’m not an economist, so maybe I’ll need a bit of time before getting an idea about how exactly this will affect a CS algorithm.
s.
A good trader is a realist who wants to grab a chunk from the body of a trend, leaving top- and bottom-fishing to people on an ego trip. (Dr. Alexander Elder)
In one of your previous post you explained how 0.1% increase/decrease in one pair is equal to 0.1% increase/decrease in some other pair (from your ROC point of view).
That’s true!
Well, let’s consider USD interest rate at 1%, and NZD interest rate at 3%. Now assume that each one will increase by 10% (or by 0.1)… My DIFF or DELTA will increase (from 2 to 2.2) – yours remains the same.
Allright: at least for me, this is a completely new argument in our discussion. As you know from my source code, until now I did not consider interest rates when calculating my ROC-based CS, but you can bet I’m interested. Thank you for pointing me in that direction! I’m not an economist, so maybe I’ll need a bit of time before getting an idea about how exactly this will affect a CS algorithm. s.
The interest rates was just an example.
Similiar ROC’s are NOT equal. Your indicator looks visually “right” just because almost all pairs are near ~1.000USD, but the math is wrong.
0.1% in EURUSD is not equal to 0.1% in GBPUSD – that’s comparing apples to pears. It will have the same effect as with interest rates comparison.
Data needs to be “normalized” before such comparison.
G.
Data needs to be “normalized” before such comparison. G.By “normalized” do you mean “weighted”?As in each currency needs to be weighted by its market share (i.e. significance).One way to do this is via Money Supply.Or here is a post from @gg53 years ago.Which the the preferred method?Something I found deep in the net posted from GG:
Individual currency weight – How to:
(info gathered from the internet- percent market share)EURUSD = 28%
USDJPY = 14%
GBPUSD = 9%
AUDUSD = 6%
USDCAD = 5%
USDCHF = 4%
EURJPY = 3%
EURGBP = 3%
OTHER = 28%Those numbers doesn’t change much – but you can update them monthly (or whenever…)
For current example – Let’s ignore the “Other” and deal with the 72% (above sum).
Now we take all the pairs that include the USD = 66%.
Divide in 2 (to extract the USD only) = 33%.
Since the 33% is only 72% of the market, USD = 33/72*100 = ~ 45%.Meaning – roughly 45% of the market volume consists of USD.
(Sorry if I caused some headaches…)We repeat the above calculation for each of the other 7 currencies.
Now go to the indicator (FXCorrelator in NVP case) and multiply each currency with its “factor”, i.e.:
USD = USD*0.45Just make shure that the total “factors” are equal to 1 or 100%….
What's it all about? It's all about money.
Here is another analysis I did myself at the beginning of the year.
It has already been tallied (to equal 200%) and then halved.
2010 2013
USD 42.45 43.50
EUR 19.55 16.70
JPY 9.50 11.50
GBP 6.45 5.90
AUD 3.80 4.30
CHF 3.15 2.60
CAD 2.65 2.30
MXN 0.65 1.25
CNY 0.45 1.10
NZD 0.80 1.00
SEK 1.10 0.90
RUB 0.45 0.80
HKD 1.20 0.70
SGD 0.70 0.70
TRY 0.35 0.65
Other 6.75 6.10
Total 100.00 100.00
What's it all about? It's all about money.
Sorry I cant get it to insert tables nicely from excel. Maybe this is easier to read:
FX volumes by %:
2010
USD 42.45
EUR 19.55
JPY 9.50
GBP 6.45
AUD 3.80
CHF 3.15
CAD 2.65
MXN 0.65
CNY 0.45
NZD 0.80
SEK 1.10
RUB 0.45
HKD 1.20
SGD 0.70
TRY 0.35
Other 6.75
Total 100.00
2013
USD 43.50
EUR 16.70
JPY 11.50
GBP 5.90
AUD 4.30
CHF 2.60
CAD 2.30
MXN 1.25
CNY 1.10
NZD 1.00
SEK 0.90
RUB 0.80
HKD 0.70
SGD 0.70
TRY 0.65
Other 6.10
Total 100.00
What's it all about? It's all about money.
Here is another analysis I did myself at the beginning of the year.
Maybe it’s better if you link the source of your analysis so everyone can learn something…
The interest rates was just an example. Similiar ROC’s are NOT equal. Your indicator looks visually “right” just because almost all pairs are near ~1.000USD, but the math is wrong. 0.1% in EURUSD is not equal to 0.1% in GBPUSD – that’s comparing apples to pears. It will have the same effect as with interest rates comparison. Data needs to be “normalized” before such comparison.
Then these same doubts I had written in previous posts are not totally wrong …
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