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Nowcasting directional change in high frequency FX markets

Author

Listed:
  • Edward P. K. Tsang
  • Shuai Ma
  • V. L. Raju Chinthalapati

Abstract

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.

Suggested Citation

  • Edward P. K. Tsang & Shuai Ma & V. L. Raju Chinthalapati, 2024. "Nowcasting directional change in high frequency FX markets," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 31(1), March.
    • Handle: RePEc:wly:isacfm:v:31:y:2024:i:1:n:e1552
    DOI: 10.1002/isaf.1552
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    References listed on IDEAS

    as
    1. T. Bisig & A. Dupuis & V. Impagliazzo & R. B. Olsen, 2012. "The scale of market quakes," Quantitative Finance, Taylor & Francis Journals, vol. 12(4), pages 501-508, July.
    2. James B. Glattfelder & Anton Golub, 2022. "Bridging the Gap: Decoding the Intrinsic Nature of Time in Market Data," Papers 2204.02682, arXiv.org.
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