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. Understanding these tendencies require great knowledge in statistics, and often calculus, and correctly predicting how they would perform inside comprehensive trading plans is not magically done. Additionally, these calculations require capable software and computing power which are hard to come by. Interpreting these patterns to come up with nifty market tricks is apparently so easy that any average person can do it. With a less sophisticated but reasonable approach using standard spreadsheet software, our results reveal that the sample data suggest a weekend effect exists in currency prices and any exploitable pattern in price movement is worth exploring. If we go farther, there is a chance that we might discover the cause of relationship, and this will enhance predictability of the next shift in prices. One theory states that news and information’s alternate processing has something to do with price movements.
The anticipation of and inability to act on information during the non-contiguous trading days could affect investor psychology and bias trading decisions accordingly. This goes along with the belief that good news is released during the week when it can be acted on and that bad news is released on weekends when it is more difficult to respond to. Another theoretical cause centers on the fact that information is processed faster during weekdays than on weekends, resulting in greater forex rates during the week.
Though neither explanation adequately fully explains the weekend effect, it is an economic anomaly that can be explored and exploited with some basic data mining statistical techniques. Daily returns of each market and their first differences with daily forex prices are used to obtain data for this study.
To download the top ten currencies, you must follow a standard reporting system. Studying weekend effect may require more than just a year of market data. In order to find the roots of this phenomenon we would have to dig through years of data, but that isn’t our purpose; all we want now is to inspect the present condition of the weekend effect.
Measuring the persistence’s increase or decrease through a moving window of time is a good idea so as to determine whether or not investors are prioritizing certain approach over another. A distinct trading advantage can be had by those who are diligent enough to recognize its reappearance early. This puts emphasis on using data mining in order to dig up new market patterns and how to exploit them, as opposed to proving information that is already present on the market.
Much like the saying, ‘here today gone tomorrow’, the closing prices represented in percentages varies on a day to day basis, in addition to the historical accounts of trading, as recorded during last year. One thing worth pointing out after the long period examined is the return on all but the Hong Kong dollars against US dollar. The weekend effect is an extremely popular topic of discussion, and a lot of analysts have come up with countless different explanations for it. Spreadsheet software and basic forex knowledge is all it takes to exploit and monitor these tendencies effectively.
