Nowcasting directional change in high frequency FX markets

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Tsang, Edward P. K.; Ma, Shuai and Chinthalapati, V. L. Raju. 2024. Nowcasting directional change in high frequency FX markets. Intelligent Systems in Accounting, Finance and Management, 31(1), e1552. ISSN 1055-615X [Article]

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Official URL: https://doi.org/10.1002/isaf.1552

Abstract or Description

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.

Item Type:

Article

Identification Number (DOI):

https://doi.org/10.1002/isaf.1552

Data Access Statement:

The data that support the findings of this study are available from the corresponding author upon reasonable request.

Keywords:

directional change, Finance, markets, overshoot, time series

Departments, Centres and Research Units:

Computing

Dates: