Significant awareness has been placed to the fluctuation in forex prices during seasons and weekdays. The hope is that by discovering patterns, you can exploit the trading opportunities they present. Unraveling new ways to understand market dynamics with the use of day of the week patterns is a good thing, but then the costs of transaction may limit returns. But such tendencies are not magic, and correctly analyzing their performance as part of a comprehensive trading plan requires a good understanding of statistics and often a working knowledge of calculus. Additionally, these calculations require capable software and computing power which are hard to come by. The good thing is; you don’t have to be a rocket engineer just to pick up innovative market information from such patterns. With less complicated methods using basic spreadsheets, we figured out that currency pairs cloak exploitable price patterns of weekend effects, which are definitely worth getting into. We could improve predictability of the next price movements by going further and trying to discover the cause of the relationship. One theory states that news and information’s alternate processing has something to do with price movements.
Among the effects are the anticipation of and failure to respond to information because it is processed non-contiguously, which further extends to affecting an investor’s psychology, making his trading decisions bias. Releasing news on weekdays have the tendency to make people react immediately, which makes it good, while news on weekends have a low response from people, which makes it bad. Another theory is that because people receives news more often during the week, forex rates have the tendency to go up, but otherwise during the weekends.
Racking it up as an economic anomaly because neither of the theories mentioned could explain the weekend effect, traders can only use data mining and statistical techniques to take advantage of it. To study this effect, certain data such as the daily forex prices are inferred with the daily returns coming from each market.
A standard reporting system exists for downloading top ten currencies. To study the weekend effect correctly, one would need a full one-year data about the market. An exhaustive study would require several years of data, but our intent here is to demonstrate the current state of the known weekend effect and not to prove or disprove this phenomenon.
It’s a good idea to examine any study in a moving window of time to measure whether it’s increasing or decreasing in persistence, often a factor of whether the investment community is paying more or less attention to a certain approach. The ability to recognize a recurring trend is a very distinct advantage that most hard working traders have. This is not about confirming data that is already present in the market; rather, the weight is on finding new patterns through data mining so as to exploit the weekend phenomenon as quickly as possible.
The day-to-day variations in the closing prices, denoted as percentages, is clearly shown in the saying, ‘here today, gone tomorrow,’ on top of the historical viability of trading over the past year. During the examined time period, it became evident that there is something worth exploring about the returns on all but Hong Kong dollars versus US dollars. This phenomenon is not only known globally, but is one of the most debated topics, and as a result people have come up with countless explanations about it. Just by using standard spreadsheet and employing common knowledge, you can effortlessly watch over and take advantage of these tendencies in forex.