After a few weeks of languishing, the EURUSD took off like a rocket today. This downturn taught me a valuable lesson when trading currencies with Neural Nets. You should stay with the direction of your Neural Net prediction but you should watch the volatility levels like a hawk.
Currencies are naturally very volatile and using my Monte Carlo simulation I’m now able to calculate the odds of a very large volatile move occurring. Over a period of 10,000 observations, there’s a 10% chance that the Euro could see a 0.4% move either way on any given day.
What’s more interesting is that there’s a 61% chance that the daily volatility for the Euro will be between -0.4% and +0.4%. Nice, now I know how to place a trailing stop and when to take profits! :)
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