Currency Prices and Signal to Noise Ratios

A vital component to measure a currency or any market price is by the Signal to Noise Ratio. Years ago I wrote a detailed article on this topic along with charts but I cannot find the article.

Here’s this week’s GBP/USD at current 1.2790

Coef Variation Noise Ratio
0.6107 163.7532

The Signal to Noise Ratio answers the question, what’s inside the price, what happening inside the price. Is the price dead, trending, finished?

The Noise Ratio is the Signal and a commentary to Noise and Signal inside a price. The Coefficient of Variation answers how far did price travel in relation to the Noise Signal. Because a currency price contains different numbers and movements, the full Signal to Noise ratios will vary across currency pairs.

The relationship to Signal/Noise to its variation contains a range. A range maybe dynamic, a wave, a frequency

Most important aspect is the Signal because it measures the amplitude of a price. For trading purposes, this represents a top. GBP/USD says inside the current price is pure noise and a non performing price because it reached its amplitude. The Signal requires variation and the only way to achieve variation is short GBP. Then a more normalized Signal /Noise Ratio to Variation will achieve its desired level.

GBP’s Signal /Noise level is at extremes and known by 163.7532 +0.6107 = 164.36. An extreme Signal/ Noise Ratio normally experiences a dramatic drop due to its Signal to a top.

If the opposite was true and the Variation was to high in relations to a small Signal then the Signal informs a long trade is required to relieve the variation in the price. A high variation in price is the opposite to pure Noise in the Signal. The current price won’t perform as a bottom is here.

An extreme in either the Signal/ Noise or the Variation informs the level of the Standard Deviation is off sync which translates as current price is not correct.

Here’s GBP/USD at 1.2956

Coef Variation Noise Ratio l
0.6657 150.2262

A more normalized price.

Here’s GBP/USD 1.2550

Coef Variation Noise Ratio
0.5479 182.5217

GBP/USD 1.2350

Coef Variation Noise Ratio
0.5166 193.5692

GBP/USD 1.3150 and near long term target

Coef Variation Noise Ratio
0.5166 193.5692

GBP/USD 1.3350

Coef Variation Noise Ratio
0.8146 122.7573

More normalized price and higher GBP travels then the more normalized is the price.

More later, Sunday Church time

 

Brian Twomey

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