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Morning Briefing

Using MA in Uptrend

10th Februry, 2003

Dear Readers,

We have been doing some number crunching in Euro and some findings are given below, for your benefit.

We examined Daily data from 3-Jul-95 till 7-Feb-03 (1975 observations). We defined Uptrend Days to be when Close of Day 1 (C1) was greater than the 1st Daily MA on our Signal Sheet (called MA), and found:

Uptrend Days: 928 (46.99%)
Downtrend Days: 1047 (53.01%)


Then we examined to see how close the market went to the MA on the following day (difference between L2 and MA). We found:

Negative days: 444 (22.48%)
Neutral days: 10 (0.51%)
Positive Days: 474 (24.00%)


Within these, L2<= -0.0070....7.3%
L2>= +0.0070....11.2%
-0.0029<= L2 <= 0.0030.....58.1%
-0.0039<= L2 <= 0.0040.....72.1%


In the cases where L2<= -0.0070, there was a 44.9% chance that the next day, the High would be greater than the MA (H3>MA). But if L2<= -.0080, there was only a 30.6% chance of H3>MA.

This means that in an Uptrend, there's only a 2.23% chance that if L2<= -0.0080, the uptrend would continue the next day.

As a next step we examined to see how high the market went on Day 3 in an uptrend, given that -0.0030<= L2 <= 0.0030. Findings: In 91.7% of the cases, the uptrend continued on Day 3 In only 8.2% of the cases, H3
Thus we may say that if, during an Uptrend (C1>MA) we were to buy EURUSD within +/30 pips of MA on Day 2, there's a 91.7% chance of the market touching a high greater than MA on Day 3. How high could H3 be?

0-60 pips.....28.53%
50-60 pips....5.27%
61-500 pips...63.19%
61-130 pips...37.35%
130-500 pips..25.83%

This means that if buying EURUSD within +/- 30 pips of MA during an Uptrend, there's a 63.19% chance of the next day's high being more than 60 pips, with a decent 37.35% chance of a Reward/ Risk Ratio between 1 and 2

Please let us know if this was useful to you and you would like more inputs of this kind.


Thank You.

 
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