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Filtering USDCHF Trades with Gold in a Coupled Hidden Markov Model

Article arXiv papers · Author: Donny Lee
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Summary

The document outlines a proposed USDCHF trading strategy that uses gold market dynamics as an intermarket filter. It models both markets with a coupled hidden Markov model, linking their state behavior rather than analyzing the currency pair in isolation. RSI and CCI are the stated observations used to trigger trading signals.

At each iteration, the model is decoded to estimate the most probable next state and observation, which are then intended to guide trades. The rationale is that gold may provide useful context for USDCHF, while the Markov structure supplies forecasts from recent state information. The document gives no backtest results, parameter choices, risk controls, or details on how signals become positions. Profitability is presented as a hope, not demonstrated evidence; the proposal therefore needs empirical testing and careful validation before practical use.

Key ideas

  • The strategy uses gold dynamics to filter trades in USDCHF.
  • A coupled hidden Markov model represents the behavior of both markets.
  • RSI and CCI serve as observations for trading signals.
  • The method uses decoded next-state and next-observation estimates to inform decisions.
  • The document proposes the approach but reports no performance evidence.

Tags

ForexCommoditiesMachine learningTechnical indicators
Full text
# Trading USDCHF filtered by Gold dynamics via HMM coupling


# Trading USDCHF filtered by Gold dynamics via HMM coupling









We devise a USDCHF trading strategy using the dynamics of gold as a filter. Our strategy involves modelling both USDCHF and gold using a coupled hidden Markov model (CHMM). The observations will be indicators, RSI and CCI, which will be used as triggers for our trading signals. Upon decoding the model in each iteration, we can get the next most probable state and the next most probable observation. Hopefully by taking advantage of intermarket analysis and the Markov property implicit in the model, trading with these most probable values will produce profitable results.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.