NZD futures daily range

In this analysis we will see how the NZD futures fit into a particular mean reverting strategy.

First, we are going to calculate the average daily range aDR = (High- Low) since 2010. To compare, we also calculate the average daily High – Open (aHO) and Low – Open (aLO).

2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
aDR	0,0100	0,0110	0,0078	0,0090	0,0073	0,0093	0,0083	0,0064	0,0059	0,0049	0,0074
aHO	0,0050	0,0054	0,0039	0,0044	0,0037	0,0047	0,0042	0,0034	0,0031	0,0026	0,0038
aLO	0,0049	0,0056	0,0038	0,0046	0,0035	0,0046	0,0041	0,0030	0,0028	0,0023	0,0036

Table 1. aDR, aHO, aLO over the years

As can be seen from Table 1, the daily volatility – to be precise, its price range (High – Low) – takes on very different values over the years, alternating between years of high volatility and years of low volatility. The ranges of its positive returns aHO and negative returns aLO, on the other hand, are almost equally distributed.

After finding the annual averages over the daily ranges, we will proceed with identifying the sessions in which:

the high produced a movement greater than the average daily range of the previous year, thus (High – Opening) > aDR_t-1 ;
the minimum has produced a movement greater than the average daily range of the previous year, therefore (Opening – Low) > aDR_t-1;

In both cases the price movement deviates significantly from its opening, significantly if we consider its aHO and aLO. So we will use the aDR as resistance and support.

If one of the two conditions occurs, the market entry will be in the opposite direction of that movement: in case 1) we will enter Short, in case 2) we will enter Long.

Let’s see the results that this strategy would have brought by holding the positions until the close of the day.

Short trades, totalling 298 trades, have a Win Ratio of 56%, a Profit Factor of 1.5, with a total tick movements amounting to 1295;
Long trades, with a total of 298 trades, have a Win Ratio of 57%, a Profit Factor of 1.4 with a total tick movements amounting to 1191;

The two conditions lead to the following equity line of cumulative tick movements.

Figure 1. Cumulative Tick Movements.

From this analysis we can deduce that NZD largely respects its daily ranges, while changing volatility over the years.

Analysing the equity line in Figure 1, the best performing years are the middle ones, where there are no high or low volatility peaks, as we can see from the aDRs in Table 1. An aDR calculated over a shorter interval, rather than a year, would better capture market conditions.