This week, we take a look at a case inspired by a discussion in one of our online forums, which you can access at www.spiderfinancial.com/forums/financial-time-series/forex/. One of our users asked if they could use NumXL to predict the next-day market open and market close exchange rate (i.e. spot) for the EUR/USD. We started by creating a trading strategy where we buy EUR at market open, and close the position (selling EUR) at market close.
Then we take a slightly different approach, avoiding the kind of complex non-linear models we would need to make sense of the noise-like distribution of the daily returns. Instead, we employ a stop-loss strategy that will limit our daily loss and, most importantly, generate positive returns.