Trading USDCHF filtered by Gold dynamics via HMM coupling
This is an incremental approach for forex traders, applying existing methods to new data without broad impact.
The paper tackled the problem of trading USDCHF by using gold dynamics as a filter, resulting in a strategy that models both assets with a coupled hidden Markov model to generate trading signals based on predicted states and observations.
We devise a USDCHF trading strategy using the dynamics of gold as a filter. Our strategy involves modelling both USDCHF and gold using a coupled hidden Markov model (CHMM). The observations will be indicators, RSI and CCI, which will be used as triggers for our trading signals. Upon decoding the model in each iteration, we can get the next most probable state and the next most probable observation. Hopefully by taking advantage of intermarket analysis and the Markov property implicit in the model, trading with these most probable values will produce profitable results.