Nowcasting directional change in high frequency FX markets

Summary Directional change (DC) is an alternative to time series in recording transactions: it only records the transactions at which price changes to the opposite direction of the current trend by a threshold specified by the observer. DC can only be confirmed in hindsight: one does not know that d...

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Bibliographic Details
Published in:Intelligent systems in accounting, finance & management finance & management, 2024-03, Vol.31 (1), p.n/a
Main Authors: Tsang, Edward P. K., Ma, Shuai, Chinthalapati, V. L. Raju
Format: Article
Language:English
Subjects:
directional change
Finance
markets
overshoot
time series
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Summary:Summary Directional change (DC) is an alternative to time series in recording transactions: it only records the transactions at which price changes to the opposite direction of the current trend by a threshold specified by the observer. DC can only be confirmed in hindsight: one does not know that direction has changed until it is confirmed by a later transaction. The transaction in which the price confirms a DC is called a DC confirmation point. DC nowcasting is an attempt to recognize DC before the DC confirmation point. Accurate DC nowcasting will benefit trading. In this paper, we propose a method for DC nowcasting. This method is entirely data driven: it is based on the historical distribution of DC‐related indicators. Empirical results suggest that DC nowcasting is possible, even under a naïve rule. This opens the door to a promising research direction on an important topic.
ISSN:1550-1949
2160-0074
DOI:10.1002/isaf.1552