In this article, I will systematically investigate the tendency of different Forex pairs to either trend or revert to the mean. I will do so by backtesting a simple trend-following strategy. (Code available on Github. See the end of this article.)
“The trend is your friend.”, is a very well known trading adage. Another thing you read a lot in trading books, blogs, etc. is that the market only trends 20, 30, 40, xx% of the time.
I was wondering how these ideas relate to the Forex markets.
I asked myself the following questions:
Do all forex pairs have the same trending tendency?Are there any pairs that are actually generally more mean-reverting in nature?And which Forex Pairs are generally trending and which ones tend to revert to mean?
The reason I was asking myself these questions, is because I have experienced different behaviors between forex pairs while trading the same strategy.
Some pairs just keep going in the direction of my trades, while others seem to turn around more quic…
