The assumptions:
1) Pair valuation (read: long term price action) is determined largely by fundamentals between a pair.
2) When pair fundamentals are unchanged for a period (GDP, inflation, employment, political stability etc), pair valuation reaches equilibrium and 'rangy' trading ensues.
The theory:
1) A significant period of daily range trading should be accompanied by a concurrent period of relative 'equilbrium' between fundamentals
2) Breakout from a significant period of daily range trading should occur shortly after pair fundamentals exhibit a significant divergance from 'baseline' fundamentals witnessed during the range bound period.
The implication is that new fundamental relationships between the pair drive a new valuation of the currency.
Fundamental-based traders than battle with an entrenched range-bound market mentality, with fundamentals eventuallly winning out and a new trend then forming.
For myself, this theory could be applied to a type of 'fundamental' based filter that would engage after a period of
1) daily rangy trading
2) that corresponds with unchanged pair fundamentals
When fundamentals begin diverging a range bound period, entries for a trend following system can be put on.
I dont have the computing skills to test this yet. But in theory, the idea should hold.
Any ideaS? Suggestions? Contributions?
Does the market hold to this theory, in your experience?
1) Pair valuation (read: long term price action) is determined largely by fundamentals between a pair.
2) When pair fundamentals are unchanged for a period (GDP, inflation, employment, political stability etc), pair valuation reaches equilibrium and 'rangy' trading ensues.
The theory:
1) A significant period of daily range trading should be accompanied by a concurrent period of relative 'equilbrium' between fundamentals
2) Breakout from a significant period of daily range trading should occur shortly after pair fundamentals exhibit a significant divergance from 'baseline' fundamentals witnessed during the range bound period.
The implication is that new fundamental relationships between the pair drive a new valuation of the currency.
Fundamental-based traders than battle with an entrenched range-bound market mentality, with fundamentals eventuallly winning out and a new trend then forming.
For myself, this theory could be applied to a type of 'fundamental' based filter that would engage after a period of
1) daily rangy trading
2) that corresponds with unchanged pair fundamentals
When fundamentals begin diverging a range bound period, entries for a trend following system can be put on.
I dont have the computing skills to test this yet. But in theory, the idea should hold.
Any ideaS? Suggestions? Contributions?
Does the market hold to this theory, in your experience?
