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Paratrade Systems Weekly Research News

13 Jul

Looking to the Yen for Euro Confirmation

The Yen and the Euro move to a different beat. Here are the figures over the last 10 years:

  • There are 743 days when they both rise on the same day.
  • There are 504 days when the Euro rises and the Yen declines.
  • There are 752 days when they both rise on the same day.
  • There are 504 days when the Euro rises and the Yen declines.

It may seem obvious but we should check to see if there is a significant difference in the performance of the Euro when the Yen follows versus when the Yen diverges. By far, the best up days in the Euro occur when the Yen is also up. It’s not even close. We can then look to see how much the Yen helps us trade the Euro. This the performance if we buy the Euro if the Euro gauge is above 50 and short it when the gauge is below 50:

There are a total of 2526 occurrences overt he last ten years. The average gain per day is $98.56 If we now add an additional filter: The Yen must be above its 5 day average for a long and below the average for a short. The number of occurrences drops to 1548 and the average profit rises to $133.97

The MA filter helps; You may have another trend test you prefer. Don’t wait for OB/OS conditions in the Yen – it is just not mean reverting enough to be useful. Using the Yen Fuel Gauge as an additional filter removes too many trades and provides insufficient advantage, so going forward we shall use the Euro gauge by itself while keeping an eye out on the Yen trend.

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