From theory to practice - page 6
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This is the difference between the current and previous price values.
Vladimir, how fair is it to work with the average between Bid and Ask? I checked the spread histogram - it's very far from bell-shaped - it looks like a Humbel distribution. Isn't it quite correct to work with such an average?
Why such a strange naming, "returns", and no indication of which price, Bid or Ask?
This average accurately reflects the fact that any brokerage company does not quote currency pairs independently. It is not about distributions, it is a rigid law. If any bank or DC suddenly violates the rule for the ratio of currency strengths XXX and YYY in the cross-rate XXXYY = XXXUSD / YYYUSD by the value of the spread, it will be in trouble with arbitrage. Because buying and selling occur frequently and cannot be predicted, both banks and DCs maintain cross rates near the middle of the Bid - Ask segment. The 7 forces of currencies act as independent variables determining the exchange rate of the 28 pairs. Analysis of behaviour of XXXYYY relation instead of analysis of behaviour of XXX and YYY currency forces separately is both superfluous work and ignoring real dependencies. Not correlations, but dependencies whose observance is monitored by arbitrage systems with financial penalties for the violator, be it a bank or a DC.
Why this strange naming, "returns", and no indication of which price, Bid or Ask?
Such an average is a fairly accurate reflection of the fact that any DC does not quote currency pairs independently at all. It is not about distributions at all, it is a rigid law. If any bank or DC suddenly violates the rule for the ratio of currency strengths XXX and YYY in the cross rate XXXYY = XXXUSD / YYYUSD by the value of the spread, it will be in trouble from arbitrage. Because buying and selling occur frequently and cannot be predicted, both banks and DCs maintain cross rates near the middle of the Bid - Ask segment. The 7 forces of currencies act as independent variables determining the exchange rate of the 28 pairs. Analysis of behaviour of XXXYYY relation instead of analysis of behaviour of XXX and YYY currency forces separately is both superfluous work and ignoring real dependencies. Not correlations, but dependencies whose observance is monitored by arbitrage systems with financial penalties for the violator, be it a bank or a DC.
then.
the quotation of others will take the quotation of the master and become a slave
That is, in fact, nothing supernatural will happen and there will be no chart mismatch
the more so because the crosses are not quoted, but obtained by either multiplying or dividing the prices of the majors
that is, crosses are just an ordinary indicator, nothing more
Am I right in thinking that it is logically important to take the geometric mean (the root of the product ofBid and Ask), or can I not bother with such subtleties?
Why this strange naming, "returns", and no indication of which price, Bid or Ask?
This average reflects the fact that any brokerage company does not quote currency pairs independently. It's not about distributions, it's a rigid law. If any bank or DC suddenly violates the rule for the ratio of currency strengths XXX and YYY in the cross-rate XXXYY = XXXUSD / YYYUSD by the value of the spread, it will be in trouble from arbitrage. Because buying and selling occur frequently and cannot be predicted, both banks and DCs maintain cross rates around the midpoint of the Bid - Ask segment. The 7 forces of currencies act as independent variables determining the exchange rate of the 28 pairs. Analysis of behaviour of XXXYYY relation instead of analysis of behaviour of XXX and YYY currency forces separately is both superfluous work and ignoring real dependencies. Not correlations, but dependencies whose observance is continuously monitored by arbitrage systems with financial penalties for the violator, be it a bank or a DC.
Thank you Vladimir! I've come to this forum for a reason - there are really knowledgeable people here!
Am I right in thinking that, logically, it is important to take the geometric mean (the root of the product ofBid and Ask), or can I not bother with such subtleties?
What is the problem with taking the Bid and Ask separately?
What's the problem with considering Bid and Ask separately?
Probability density: P (x) = 1/sqrt((s^2+x^2)^3)
The following notations apply:
X - price increment
S - scale factor (not equal to standard deviation in general)
s^2/[2*sqrt((s^2+x^2)^3)]
s^2/[2*sqrt((s^2+x^2)^3)]
Checked. Hats off to you - you are absolutely right. Made corrections.
Hmmm... So you are sure that the return process is just as non-stationary? It definitely has at least mode, median and mean = 0. The only question is whether the variance changes over time.
It is a medical fact.
Study the math. There are plenty of tests on the subject.
If you don't want to bother with maths, you can look at graphs with gaps and stuff like that...
But you know better.
It's a medical fact.
Study the math. There are plenty of tests on the subject.
If you don't want to do the maths, you can look at charts with gaps and stuff like that...
But you know better.