Testing GBP/USD Up-Day Odds with an EMA200 Filter
Summary
The document asks whether GBP/USD daily closes are equally likely to rise or fall, then tests whether daily direction depends on the close’s position relative to a 200-day exponential moving average. It counts up, down, and unchanged days overall, and separately counts those outcomes when the close is above or below the EMA. The reported observation is that up days occur more often when the close is above the EMA.
The discussion cautions that an apparent imbalance does not establish a tradable effect. Sample length, measurement precision, and the indicator’s relationship to price can affect the result; an EMA-based split may therefore need careful statistical evaluation. The response notes that exact equality of up and down frequencies should not be assumed and that an EMA is only one possible decision input. No sample period, actual counts, significance test, or out-of-sample validation is supplied, so the observation alone cannot distinguish a robust conditional pattern from sampling variation or test design bias.
Key ideas
- The proposed test counts daily up, down, and unchanged outcomes overall and conditional on the close being above or below the EMA200.
- The reported pattern is a greater frequency of up days when GBP/USD closes above the EMA.
- A conditional frequency difference does not by itself demonstrate predictive value or a profitable strategy.
- Sample size, measurement precision, and the EMA’s dependence on price may affect interpretation.
- The document provides no counts, formal significance analysis, or out-of-sample evidence.
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Full text
# Up and Down days in GBPUSD and a Filter
# Up and Down days in GBPUSD and a Filter
I want to study if the odds of an up or down day in a forex pairs is 50-50. I just count the total number of up and down days in X years and compare it with the total days. The results are very similar to a 50-50 chance. Now I want to see if by applying an EMA200 filter you have more probabilities of an up day if the closing price is above the EMA, and vice-versa for a closing price below the EMA. The results show that it´s more probable to obtain an up day if the closing price is above the EMA. The question is: Does the test have any bias? I am worried that the results aren't true because of a bias in the test. Because the EMA depends on the price, maybe it´s just obvious that there are most up days if the price is above the EMA.
```
$ema = EMA(Close,200);
foreach (NewDay) { $Totaldays++;
if (Today(Close) > Today(Open)){ $Totalup++; }
if (Today(Close) < Today(Open)){ $Totaldown++; }
if (Today(Close) == Today(Open)){ $Totaldojis++; }
if (Today(Close) > Today($ema)){ $Totalabove++;
if (Today(Close) > Today(Open)){ $Upabove++; }
if (Today(Close) < Today(Open)){ $Downabove++; }
if (Today(Close) == Today(Open)){ $Dojisabove++; }
}
if (Today(Close) < Today($ema)){ $Totalbelow++;
if (Today(Close) > Today(Open)){ $Upbelow++; }
if (Today(Close) < Today(Open)){ $Downbelow++; }
if (Today(Close) == Today(Open)){ $Dojisbelow++; }
}
```
}
## Answer by Emma Marcier (score -1)
https://quant.stackexchange.com/a/44122
The design of your experiment may be false.
It may have several biases including, the precision of your experiment (e.g., `0.001`), number of days, and this list goes on. I can safely say that the probability of up and down days to be exactly `50-50` or `0.5` up or `0.5` down is very near `0`, considering such factors.
The probability may be very close to `0.5` (`50%`), such as `0.49129` (`49.129%`), `0.49171` (`49.171%`), etc., yet those are not `0.5` and that precision is how it would make it uncertain and thats where all the competition is.
Have seen so many retail traders gamble under such false pseudo-math assumptions and have lost large accounts including some of them jobs and houses.
I have been told, what they don't usually consider is that they do not take into account that majority of retail traders may loose (based on bell curve probabilities) if they continue to play for certain amount of time, which is usually the case (for early winners).
Or you might consider `EMA` as just one indicator, however not everyone make decision based on that.Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.