It’s often suggested that forex and markets in general are a succession of random movements, a random walk. People trade based on logical reasoning but there are so many people affecting the same value that the movements of a price become impossible to tell apart from a random walk.
With a simple method of random walk visualization, we can easily show that the above theory is incorrect. Especially for short periods like ticks, prices tend to travel in easily identifyable trends, much more so than a random instrument would.
Random walk vs tick data
First let’s see what pure randomness, as far as computers can generate it, looks like:
The pictures above are generated by a random walk. On each step, the position has a 50/50 chance of going up or down and on the next step, a 50/50 chance of going right or left. The colors change accordingly purely for aesthetics.
Now we’dlike to do the same using actual tick movements from forex instruments. We generate the following images using forex tick data. We move up or right for rises in price and we move down or left for falls in price. We alternate horizontal and vertical movements. If forex is simply a random walk we expect t…