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Writing a new grey box algo to trade stats so I thought I'd share some data (based on AUDCAD waves from 1979 to 2017).
The 3 graphics below show wave lengths and the 90th percentile boundaries.
As markets become more efficient you would expect the mean reversionary edge to be eroded.
Interestingly, volatility is increasing.
Tabling all percentiles from the 10th to 90th, below are the probabilistic price moves and retraces.
As you would expect, impulses (large moves and large retraces) occur less often then minor moves.
Zooming in on the higher probabilities (70th, 80th & 90th percentiles), expected alpha moves are in the 6-10% range and beta in the 3-4% range.
This data should prove valuable for trading plan development.
i.e.
Entry decisions (First Graphic):
if a longside alpha wave has run 35% there's a 90% chance of the wave ending
if a longside alpha wave has run 19% there's a 70% chance of the wave ending
Price Targeting (Second Graphic):
if your riding an alpha wave, there's a 90% chance of the wave moving 8% shortside or 6% longside & theres are 90% chance of a 48% retrace on the prior down wave longside and a 90% chance of a 49% retrace shortside.
Stops or Protection Hedges
If your riding Alpha it makes sense to keep stops out of high probability beta noise zones. Likewise if your riding beta, it makes sense to keep clear of gamma noise zones.
