Proposing an Innovative Model Based on the Sierpinski Triangle for Forecasting EUR/USD Direction Changes

Fatemeh Rahimi () and Seyed Alireza Mousavian Anaraki ()
Additional contact information
Fatemeh Rahimi: Department of Industrial Engineering, Kashan University
Seyed Alireza Mousavian Anaraki: Department of Industrial Engineering, Iran University of Science & Technology

Journal of Money and Economy, 2020, vol. 15, issue 4, 423-444

Abstract: The Sierpinski triangle is a fractal that is commonly used due to some of its characteristics and features. The Forex financial market is among the places wherein this triangle's characteristics are effective in forecasting the prices and their direction changes for the selection of the proper trading strategy and risk reduction. This study presents a novel approach to the Sierpinski triangle and introduces an innovative model based on it to forecast the direction changes in currency pairs, particularly EUR/USD. The model proposed in this study is dependent on the number of data selected for forecasting. The number of data is, in fact, the area of the initial triangle and the forecasted value of the self-similar triangles formed in each stage. For the performance assessment of the proposed method within one year (03/01/2019 to 28/02/2020), daily EUR/USD closed price data was classified into three categories, namely the training (70%), testing (20%), and validation (10%). Three approaches were proposed that led to forecasting the mean direction accuracy and the best result of over 60 percent in the third approach and over 50 percent in the first and second approaches. Results reflect the satisfactory improvements in the third approach compared to the econometrics, time-series, and machine learning methods. Moreover, the optimal number of data for the model is selected such that the difference between the accuracy of the direction forecasting in the training category and testing category is above 0.6 and below 0.05.

Keywords: Fractal; Sierpinski Triangle; Forex Financial Market; Direction Changes; EUR/USD (search for similar items in EconPapers)
JEL-codes: C65 C69 F31 G10 G17 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://jme.mbri.ac.ir/article-1-507-en.pdf (application/pdf)
http://jme.mbri.ac.ir/article-1-507-en.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mbr:jmonec:v:15:y:2020:i:4:p:423-444

Access Statistics for this article

More articles in Journal of Money and Economy from Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran Contact information at EDIRC.
Bibliographic data for series maintained by M. E. ().