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Currency Temperature Concept Explained


The concept of Currency pair temperature follow the analogy of FOREX rates and Brownian motion. The kinetic energy of pollen particles on still water averages the same as any molecule in the fluid and it is proportional to its temperature. Since the kinetic energy is proportional to the square of the it's velocity:

Avg(V2) = (3K/2m) T

V = velocity
K = Boltzmann constant
M = Particle mass
T = Absolute temperature

If the liquid was not still, but flowing, then the drift Vd velocity must be subtracted:

Avg((V - Vd)2) = (3K/2m)T

To express the temperature in other than the Kelvin scale, an additive constant must be included. For T in Celsius:

Avg((V - Vd)2) = (3K/2m)(T - B)

Where B = -273.15°

Following the analogy the temperature of a FOREX pair should have a similar expression:

Avg((Vrate - Trend)2) = C (T - B)

Avg = Last 4 hour average
Vrate = Difference between two consecutive quotes/ time interval between the quotes in seconds
Trend = Daily Pips/second (from the trend table)
C and B = are constants that will define a temperature scale

The temperature expression would then be:

T = Avg((Vrate - Trend)2)/C + B

To speak in temperature terms, the scale must be stretched into a familiar one, for instance one that compares to room temperatures in Fahrenheit or Celsius. C and B where set in such a way that the 2009 average “kinetic energy” would render 77° Fahrenheit or 25° Celsius and that the average kinetic energy minus its average four hour standard deviation rendered the freezing point of water, that is -32° F o 0° C.

Temperature Scale