What is the half-life of your view?

Forex education: How do you change your mind?

I posted earlier What’s the half-life of your view?, and thanks to everyone who posted their thoughts (please follow that link and read the comments section – great stuff).

I wanted to add a little to the post. Some more random thoughts.

From the Citigroup Economic Surprise Indices. Citi look at how data results vary from consensus expectations, and part of the definition includes this:

The indices also employ a time decay function to replicate the limited memory of markets.

Which is interesting.

I suppose the extent to which you believe the markets have a limited memory of data (which is what the Citi index is looking at) will vary depending on your chosen trading timeframe. Or not?

And on the relevance of the data, and its veracity. The NFP, for example, has a big initial impact … even though most agree its a bit of a lottery on the day. So how does that translate into how long to hold a view (and/or position in the market)?

Is ‘limited memory’ one way of saying the market is positioned for a move? I believe it is - as your view is formed from information available many people are forming the same view, and trading on it. As traders gather on one side of a trade the price will move in your favour initially, only to stall and perhaps reverse as it becomes a crowded bet.