Understand what a large bullish or bearish movement means with this analysis type

“Big Movement” identifies instances when excessively large movement (either up or down) has occurred in a financial instrument. This type of analysis is interesting for both trend followers as well as swing traders.

For trend followers, it may be a possible sign of a new trend formation. For swing traders it is a possible sign that a correction may be coming.

Autochartist keeps track of every instrument’s typical movement, and when an exceptional movement occurs, the trader is alerted to this event.

**Statistical Details**

Autochartist looks back up to 600 candles, for every instrument, for every direction, for Hourly, 4 Hourly, and Daily candles and generates a histogram of movement sizes in percentage terms. That means we keep track of 5 distributions for every instrument.

For example, below is the probability distribution for the example displayed above, AUD/USD daily candles:

We can see from the above histogram, that over the last 600 candles, about 40% of the time we only get movement between 0.25% and 0.5%. We can also see that about 30% of the time we get movements greater than 0.5% and smaller than 0.75%, and so on.

If we add up these numbers until a threshold of 95%, then anything above that would be regarded as “out of the norm” by more than 2 standard deviations.

That means that if the AUD/USD Daily chart has a movement larger than 2.5% it would trigger a “result” in Autochartist.

For the example above, that would be (0.814 – 0.788)/0.814 * 100 = 3.19%, which is greater than the 2.5% threshold.

Each symbol, data interval and direction may result in a different probability distribution. Furthermore, because we use a moving window of historical data to recalculate new distributions every day, the results may change over time.