Hi Everyone ,

I have read this idea in Futures and Options Mag, and I thought the same idea is feasible to currency pairs.Please read on:

Volatility is typically measured by standard deviation, a somewhat abstract concept for most investors.Luckily, there are more tangible ways to measure volatility
including a new calculation introduced by Professor Javier Estrada from the IESE Business School in Spain.

Professor Estrada’s volatility measure is called the gainloss spread (GLS), which is easier to understand and is
explained in a recent issue of Active Trader (see “A simpler
volatility measure,” April 2009). This discussion reviews how the GLS is constructed and shows how it can uncover
subtle differences between the volatilities of two underlying
markets that options traders focusing on standard deviation
may overlook. In short, the gain-loss spread can help you uncover trading opportunities that the options-trading crowd neglect.

Gain-loss spread basics

To calculate the gain-loss spread for a stock, first select a historical time period — one year, for example. Next, break
the time period into intervals of 52 weeks. Finally, ask four
simple questions:

1. In how many of the 52 weeks did the stock go up?
2. In how many of the 52 weeks did the stock go down?
3. For the up weeks, what was the average percentage gain?
4. For the down weeks, what was the average percentage loss?

The weekly gain-loss spread is calculated directly from these four numbers:
The probability of gain isestimated as the number of up
weeks divided by 52.
• The probability of loss is estimated as the number of
down weeks divided by 52.
• The gain loss spread is the size of the average percentage gain times the probability of gain,
minus the size of the average percentage loss times the probability of loss.