Although many traders expect the market to continue moving in the direction of a wide-range bar’s close (whether it’s at the extreme upper or lower end of the bar), it shows EUR/USD tended to defy conventional wisdom and sink on the day after high closes and climb following low closes.
Economic news heightened this effect, which suggests traders initially overreacted to it. Also, the most extreme days (90th-percentile WRBs combined with the highest and lowest close locations) triggered the largest reversals. The table breaks down 80thand 90th- percentile WRBs into four main groups: closes within the upper or lower 20 percent of their range, and those in the upper or lower 10 percent. It also shows the WRBs with economic news in each category.
The first column, which represents the first day following extreme closes, contains the table’s most interesting price behavior. Nearly all (15 of 16) categories posted counter-intuitive moves that day, and economic news led to larger reversals in six of the table’s eight instances.
For example, 80th-percentile WRBs that closed in the upper 20 percent of their range fell an average 0.09 percent the next day; news-related WRBs with the same characteristics lost 0.19 percent. Similarly, WRBs that closed within the lower 20 percent rallied 0.16 percent the following day; however, wide-range bars that included economic news jumped a mere 0.06 percent (one of two exceptions to the rule).
The table’s last four rows, which show 90th-percentile WRBs that closed in the upper and lower 10 percent (overall and with news), are the best examples of EUR/USD’s tendency to veer in a different direction the day after economic news hit the Street.
The currency pair’s 90th-percentile wide-range bars weakened 0.08 percent the first day following closes in the top 10 percent and gained 0.11 percent
succeeding unusually low closes. Economic news magnified these next day price moves: The highest news related closes sank 0.33 percent while the lowest closes jumped 0.24 percent when combined with economic news. It’s remaining columns indicate the next-day reversals didn’t last, and all WRBs headed higher in the second week, led by those with extreme closes.
Although these trends are impressive, WRBs with the strictest criteria represent the smallest number of cases.
Subscribe to:
Post Comments (Atom)
Post a Comment