Broker to Trading

An optimization will tend to find a limit, that is one reason why forex does not express growth in the way the Dow most certainly does, and the economy with it. The exception is EUR/USD. One possible reason for this is that forex does contain chaos growth and indeed EUR is a new creation, it needed to grow.

That is one possible argument the other would be the one this blog has outlined that the ECB Fed Funds rate differential calmed the waters of money flow and subdued optimization such that chaos growth became more prominent than usual. However this resulted in a correction with a vengeance in the crash from 2008 and vast revaluation of this instrument.

Put it this way, the search for value could not be held off forever, doing this would have resulted in a failure of forex as a dynamic valuation process (optimization is the efficient engine of this) just as the equity market failed in 2008 not only as a valuation process for companies but also as a focus of money flow. Thus is could be argued that the correction was a restoration of functionality to the forex market.

I would argue it was a restoration thus of value to equity. There is a causality, forex itself re-setting the Dow. The fact that the Dow became like forex in the crisis, might support this. The re-setting process seems like a melting of the equity market. Thus how does one restore the Dow. One would probably need to remove that ECB Fed Funds differential, which despite supposed zero rates, still stands. That is a more causal elaboration of the position of this blog that interest rates need to be raised.

Everything right now supports the way things were up till the crash, which resulted in the crash. One difference this blog feels is surprisingly QE2. That is because company growth has carried on regardless and at this time money flow may help restart this growth cycle in the Dow again. But I believe that a full restoration needs USD to grow. Behind that will be a fractally growing economy, company growth. That is happening, but it needs to be more central than it is now.

The capacity of the economy to self-regenerate is not in doubt, the US economy has done it before and will do it again, fundamentally it has this enormous reservoir of creativity, expressed in economic action. This is something the UK has actually been trying to emulate (it used to have this). I believe that is may just be possible that it will now. Imagine the UK economy as an economic powerhouse again ?

The kind of painful action the government is taking right now seems to have resulted in enormous benefits with other countries in the past (i.e. Ireland, but the UK has a sounder basis for this). Perhaps this is because it strips away the kind of devices that result in easy come easy grow growth, i.e. action that helps that fractal growth happen. Thus for USD, all the US needs to do is to get that deficit in order and raise interest rates. For Cable the UK government has a lot of work to do to free that dynamo of creative economic action again, but it is possible.

I noted have that it may be the case that the titanic money flows out of the UK in the World Wars distorted this dynamo. It is the contention of this blog that money flow is an essential element of growth, but its misuse or overuse can be devastating to systemic growth processes in financial systems, as the present state of the world economy perhaps shows, however necessary it may be for non economic reasons. It may be the world economy is now like the UK economy after the Wars, except that the US economy can generate company growth.

For USD all this means that USD should go up, especially relative to EUR, if the US economy genuinely grows. Since all attempts to simulate using money flow have failed so far it seems we are stuck with that real recovery this blog and my tweets have been talking about, but that is a good thing, it is just not the way things have been. That is a manufacturing recovery, but more than this the fulfillment of the potential of the Internet boom and that creative dynamo at the heart of the US economy continues.

If stimulus injected into the system simply generates another move upwards without real growth, accompanied by rises in EUR, then it will simply generate another correction down. The retracement waves of forex are everywhere, in a market which is about money flow. But the elements of real company and economic growth are nonetheless there.

Those fundamental realities this blog discusses did reassert themselves on EUR, but they were really always there, they were simply masked by the flotation of money flow, which ebbed when the crisis happened, revealing a rocky shore. The question is can they be masked again, attempts so far have not succeeded, but they have had an effect. But if real growth happens then stimulus will have been a necessary support for this as this blog argues, it is a matter of timing, it is like making a trade which affects the market, at the right time point, on a vast scale. Thus what the effect of stimulus is, may be apparent in terms of how time affects the reaction.

For Cable it is a matter of what Cable's valuation means. As this blog has discussed it is a historical valuation, we can say perhaps it represents that creative dynamo in action, forex seems to believe it is real. What this means is a genuinely growing UK economy may not result in valuations higher for Cable than were seen in the past. That is an expression of the limiting of an optimization, hard wired into the valuation ranges of Cable.

What are the necessary conditions for QE to actually do something constructive ? It is the contention of this blog that stimulus in a financial market must fade, no matter how large the inputs. Stimulus can be useful for a number of reasons:

a) It can rescue, stop a market from finding devastatingly accurate valuations, for example in the aftermath of the crisis.

b) It can re-float assets revalued this way, but only up to a point. At this point, stimulus simply fades, and one sees that slid the blog has spoken of. QE2 should have lifted the market up on a money flow surge, but it did not.

c) The problem is stimulus needs real growth to back it up. Real growth is a fractal phenomenon, it comes and goes in complex formations. This has been seen in the way companies have grown in the past year. There is a real economic recovery, but it has very little if anything to do with stimulus.

But it may be it cannot. They are very different processes. One sees this in the equity market, where a company grows fractally, expressed in that trademark mirror of the Dow. But at some stage it becomes a creature of money flow (where most investors and funds are, where the big money is, where it can push around shares).

So let's look at the economy like this. Maybe Europe is like that company (with the possible exception of Germany as always and maybe now the UK). But the US is not. Perhaps uniquely is can re-generate itself economically and grow fractally again. Hence the fact the Dow keeps on growing.

But it maybe that a limit has been reached, computationally. However this may be true, but I do think the US can move through this, because it has the promise of the Internet bubble to fulfill.

The Dow seems to make a kind of marker for future growth, which the economy fulfills. In fact the Dow seems fractally to model the future economy. But of course it is, it is a device for expressing future expectations of growth and it does seem accurate over time.

So what is the role of stimulus in all this, well it seems to be something by which a new growth cycle can begin.

Thus the Fed is doing something very clever indeed with QE2 ? Maybe. It is not so far getting a re-run of that stimulus climb. Those technical issues, like the gravity well of 10,000 express something real, that the economy needs to find a new way to grow.

But I do believe it has it. On a log scale as this blog has argued, the Dow is trying to find a path up from the tech bubble, it is not tracing out a head and shoulders pattern.

Let's face it the only real growth since 1999 has been from tech companies, but this is only the beginning (the rest of it was asset inflation, taken from the housing bubble). It maybe that extreme stimulus is necessary to kick-start an economy which is trying to grow fractally.

So what does all this mean for forex. What does this market seem to do. It seems to be part of the process by which fractal growth coheres with stimulus. That is is the computational mechanism by which an economy re-starts. This suggests that forex should be volatile. It suggests as well that the growth of EUR/USD from 01-07 was incorrect.

This kind of process should not be in forex, it was imposed by rate differentials and caused a huge volatile correction, from a market that was doing what it is supposed to do.

As always this blog believes USD re-valuations upwards = real growth. Thus it is maybe that roads are converging to make dollar re-value upwards no matter what the intention or expectation is. I agree this is a contrarian view, but indeed that is what makes the market flow. It is the nature of market computation, it cannot flow with the money, it has to flow against the money, but at its own time, for its own computational purposes.

Anybody who tries to trade against the computational nature of a market, will tend to lose money. This suggests that those who trade forex are mostly trading against the computational nature of forex. They (we) do so because its nature is hidden, there isn't the safe shore of company growth to protect you.

That, btw, is the intensely high risk of this market. If one does not see how a market works, then you are in the grip of the antagonistic nature of market makers, big money and other traders.

It is the contention of this blog that to see how forex works need the capacity to see a multi-dimensional optimization surface that one cannot see in a visual sense. But the structural capacities of the mind can certainly feel it in some sense. If one wanted to back up this, one could perhaps look at some of the more blue-sky research that looks at the way the mind may compute.

It seem to be the basis in all events for such capacities as creative reasoning and intuition, including intuitive trading.

But one can support this process, that is what makes the mind more effective, to bring out more explicitly the deep computational logics in the brain. In forex this translates as using indicators in terms of what do they tell you about the markets. Indicators can in some circumstances help answer the question for you, what do the markets say.

PFE tells you if there is chaos in the market, RSI tells you if there is an inflexion point for money flow. The market content itself will tell you if the market will do what it is supposed to do and optimize over that.

What does that mean. It means you will see movements that will kill your stop-loss because they are not linear. In this state the market is highly variable in its range of motions, except it is really following a path, but a very complex hidden one, but with support maybe your mind can feel it.

Basically a fractal path is deterministic but an optimization path is not because it is a search. That is ultimately why one can more easily make money as a long term trader (and indeed can make long term trades, which is highly problematic in forex even with the deepest pockets).

By long term trader I mean investing as Phil Town describes it for example, traveling with a company up its growth path and exiting when money flow comes into it.

Remember the way the Dow grows, it find a plateau, like from 01-07 before it takes off again. And it needs money flow to take off, and will fall to its plateau as money flow moves out. The fractal nature of the Dow means this is seen in companies as well, that is the basis for those investing approaches.

Is there another way to invest ? Is there a symmetry back into equity from forex. Well, yes, that is the basis for hedge funds. It is like riding the flow of money, but can you do it on a small scale. I would expect you would need to look for that moment of coherence. As the blog has said, the mechanics of investing are simple, you buy and sell currency pairs and buy and sell stocks, trying to ride a value differential.

That makes riding hard, except it is easy in forex. Now what is the first time I have used the word easy with forex. What I am suggesting is that forex and stocks can make a compliment that takes the edge out of both. The edge is ruinous losses. In the methods I outline I am looking for chaos from the equity market to structure a forex trade. I am looking for money flow to give a possible direction. This gives a logic for a path.

Forex content gives the capacity to ride, but companies are really giving the direction. This gives another view of the way the forex market is a funding source for equities, and why it does not behave as one might expect. It is not so much a funding source it is more like a structure source.

That is the symmetry back into equities. The mirror of the Dow, the mirror of its fractal components reflected back as an optimization process into a deterministic market. That is perhaps why one should view equities and forex as an investing pair, that is deep market structure.

© 2010 Guy Barry - All Rights Reserved.

What are the necessary conditions for setting price targets ? How many times have you entered a trade and set limit orders, which just become like clouds in the sky. Well, basically limit orders can make sense but the conditions which give them value have to be maintained over time.

A limit order is a setting of a range for a value differential. What is that. It is probably saying the market will optimize itself into that valuation. If forex is a growth process optimized via money flow then we need to see that the conditions for this to happen are in effect and remain in effect.

Content sets the optimization, so we need to look for incoming news to change this. Essentially content changes the structure of the optimization surface. Is it the case that without news events the market structure stays the same. Perhaps for markets structured by chaos.

The forex market seems not to be. Searches of which an optimization is, will change dynamically in the search for a solution, i.e. a valuation. This may be why it is so hard to get limit orders to work in forex.

But why do limit orders stay in the sky. Because whatever you used to set your valuation differential is exactly what the market wants to keep away from. Part of its valuation function is to avoid static valuation differentials. If it did not, then money would not flow in this market, it would become stuck with occasional enormous volatile changes.

This would be when the forex market would cease to function. It is this functional basis of forex to flow money that probably overwhelms the chaos functionality of financial markets.

But chaos is always there to re-start structuring from equities and from the inherent nature of any market to grow. One of the sounder bases for a forex trade is chaos growth, but it can be overwhelmed by an optimization over money flow at any time.

And always order flow is there to impose its own antagonistic structuring. To set a limit order pre-supposes predictability in this market. There really is none. But one can make an assumption of momentum sometimes and that is a basis for a limit order.

But it is a structural momentum, it is the belief that the structure of the optimization is staying the same for a time. If you have a feel for news, then you can make another kind of momentum bet and that is a fundamentalist sense that the market will support a value differential because of economic conditions and so on. This blog searches for such conditions.

However, this said there is a big advantage to setting a limit order and that is to trades where one can feel that surface. What one is feeling is a path through it. Now that itself can change but it seem like it is more sturdy than changes in the surface itself.

But as the surface changes over the time of your trade it will look like like the path is changing. And indeed it is the case that order flow is trying to show you a way away from that path.

But it can be argued that ultimately order flow is determined by that path, because these market makers will have a strong sense of that path and will not go against it. Even the deepest pockets will have their positions destroyed if they go against it. That equals exactly the experience retail traders have of a good trade they get stopped out of or kill themselves only to see the conclusion they desired.

Thus if you have a trade like this supported by structural pointers by indicators set a limit (tighter than what you think) and let the market runs its course. But to this you have to be sufficiently capitalized.

This is argument for high gearing for margin, btw, that sense of this is in tune with the nature of forex, but for the small trader, you have to reduce your lot sizes relative to your capital. It is as well an argument about not torturing yourself watching the market is essence trying to fake you out.

Indicators thus can help show you where that path is changing, where the surface is setting a new optimization goal, ultimately a whole new path, but with a transition where re-scaling takes place. Sometimes content will tell you this, i.e. a Fed Funds rate change.

RSI seems to be useful in showing path changes (i.e. extremes when coupled with chaos at certain points). So the necessary conditions for limit orders seem to be that the path to a valuation you *correctly* deduced remains intact.

The issue here is correctness, if you do not have that, then you are in a gambling situation. What this means is that you are guessing on a goal state for the market's optimization.

Think of it like this, how well will you do in a trade in forex if you guess. I would imagine you would be wiped out very quickly. That does happen to traders, both new and experienced. This market turns information to guesses very easily.

The forex market seems to have a limited sense of a solution, there are not many desired goals states in the search tree it generates, the vast majority are loss states for all traders. It may be the antagonism directs traders away from goal states.

This is as well a determinism in the market, it is searching for something. Content gives it a valuation direction and then new content changes this. The task of the trader is to find that path as it happens. That is the issue and why it is hard to use limit orders. In equities there is some sense to it, one can set limit orders based on undervalued stocks for example.

But in forex one has to stay with the trade. But there does seem to be some structure in this market that can indicate direction as it happens. And if one has a strong sense of it one can set a market on where it is going, that is set limit orders. In this voyage, indicators can get your back, but using them to predict direction for your trade seems to be a mistake in this market.

But maybe they can be used to set limits to changes in that direction. That is, they can indicate whether that direction you feel to be correct is being breached by money flow or other structural alterations.

That breach may be in the direction of your trade. But the result may be a move radically away from your trade within your limit. At that point the limit needs to be changed. RSI can be useful in this. The idea here is that indicators are pointing to structural alterations in a very complex optimization process.

© 2010 Guy Barry - All Rights Reserved.

What is time in the forex market. Time in the normal world is linear, there is a time line, usually unwarped by gravity. That is the time you translate into forex when you make entry and exit points. But as we all know those entry and exit plans go awry one you enter the market. The inability to time means many missed and many wrong trades.

This suggests there is a different form of time in this market. At the very least it has different speeds. That suggests compression and expansion of the real world time line. But compression and expansion results in information changes, changes in structure in the market.

What this means is as you wait for a pre-planned trade, time itself is changing what you are trading.

There seem to be certain behavior in the market: stimulus from money flow and its fading and it resurrection. The reality is that is the control in the market and anybody who has it uses it as much as they can. Others hop onto those movements. The interesting factor is the way that this same stimulus response can be seen in 1 month.

The question is, did EUR/USD fall from 1.5 because that stimulus pushing it reached its limits. That suggests that while traders are stronger than central government talk, they are not stronger than the market and behavior at all time frames bears this out.

So for traders to protect themselves from this, one needs signs of stimulus fading. In essence one is looking for this in RSI for example

But usually RSI is seen as price based. That it is relatively overpriced, for example and the market will re-price it downwards. But as we know that does not seem to work so well. Thus it suggests something else is happening and it may be that stimulus fading.

All who use RSI feel that it does get at something profound, but what is it. It may be another element of that precision this blog feels is in forex (seen in precise price references over time), but whose accuracy traders cannot see, and hence lose money.

This blog suggested that stimulus is a natural process of the markets something to move it to a state that chaos can catch onto. It may be that forex is an expression to an extent of that stimulus movement in action across markets, but it does seem to have its own growth processes as well, but perhaps less chaos based and more optimization based as this blog has suggested.

RSI may show that moment of structure and the moment of optimization thus to use it more effectively it may be necessary to separate out those indications. It may be one is always trying to do that by confirmations. If that is the case one needs to look at it a bit differently and use it with anti-confirmations. That is where time comes into play.

The point about markets where chaos is more native is that time is with you, growth processes will happen, but you have to make a bet on a future, because you have to buy the instruments young, but with a balance sheet and financial analysis you can get some sense of a value differential over time.

But is it less risky to trade chaos based instruments like oil or e-minis as leveraged products on a day trade, i.e. like a currency.

It may be that an optimization based trade is better for day trading than a chaos based trade. That is because those products do not have a day trade based growth process, the growth process is long term. So you are trading a growth process out of its time frame. So in the end time may work against you in these kind of instruments.

One can speculate that entries and exits do not work so well in forex because if time moves at different speeds, then setting entries and exists based on time as we experience it outside the market is pretty pointless. Perhaps it is better to set entries and exits on structure formation instead. In effect one does as one changes ones trade as one trades, as market structure changes.

What one is trying to capture is something like what QE2 may be capturing now, that is a moment when this kind of money flow boost re-starts the growth processes of the market. Here time is compressed it is more than RSI extreme plus alligator for example, one needs to know what money flow can start a chaos growth process (i.e. when).

My approach looks for time to know this, based on linear time from the US equity market, but meaningful time. A step further is meaningful time plus the rate of time. That is to do with structure though, and this is to do with the way one feels intuitive trades.

Think about time in an optimization process and think about what it is you want in forex. What you want is a valuation differential. But it isn't like equities where something is under-priced for some reason.

It is hard to argue that forex is anything but a very efficient market. It is just that there is nothing like a balance sheet for you to price an instrument. There is a gap between valuation and pricing.

The reasons are because this is a process based market and that is what you need to trade. This blog looks for those processes. But the valuation comes from the addition of content, of meaning to those processes. That is time in forex, it is meaningful processes, it is when to trade. Those processes have varying speeds.

It might even be said that time based trading is not that important. Look at it this way, how many times have you entered a trade and seen it go nowhere, not opposite to your trade.

Remember the market does not care about your trade, it is searching for a optimization across a whole range of factors. Money flow, which you can be part of to an extent by getting in on a trend is counter to this optimization, it imposes a valuation that the market breaks.

In part this is the antagonism of trading but it is as well the fact the market has its own range of valuation. Now that is what you want to know, but that is hidden in the optimization surface, but that is what perhaps you feel in intuitive trades.

Time in forex is movement across this surface, as such it is not linear at all. In fact a trade may make sense over time, that is over the process you key into but during that time it may make no sense at all and fake you out.

That is the problem with intuitive trading. For this reason forex trading needs sufficient margin. If you are undercapitalized no matter how good you are you will lose money.

So RSI can be used as a timing device for when to jump in, in that it indicates money flow, but you need to ally this with something to show that this money flow is going to catch onto a growth process, i.e. that there is something to optimize, then the market will move.

That is a value differential native to the market, it works best when there is not a news input, many prefer this to news. But you have to know what the meaning of this process is (overbought RSI can still go up, but after a short correction usually).

That comes from intuition, the feel for the path in that optimization surface but it can be supported by deep content from the market. That is time in forex, deep content. Time itself is a structural thing, the forex market is like a universe with vast gravity wells, with all sorts of temporal distortions on your journey to valuation. But they are part of the process.

Does this mean you have to feel exits and entries, yes, but with a hard logical system to say when not to trade. In the space where you do enter you need to use content to time an exit. In general one is told to trade within a system, but the losses from doing this over time seem to produce at best a zero sum game. But the reality is, losses are the norm.

Follow the valuation process itself and then it is a different matter. That is the great seduction of forex, that sense you have when you first see it…all I have to do it ride those waves.

But the reality is, the determinism in equities that produces a timeline is not in forex. That is to say, look at an equity chart for a stock and look at a currency pair chart. They look pretty similar, but they are not at all.

If properly viewed from a temporal perspective, the stock chart would probably look similar, but the forex chart would look radically different. What do I mean by this.

The time-line, the actual way it could have moved. That is the number of possible movements of a forex pair is vastly higher than those of a stock. So a forex chart would be this hyper complex journey along an optimization surface. A stock chart is pulled by the gravity itself of the growth processes at work and grounded valuation processes (grounded in the balance sheet).

Forex is not hidden it is just represented in such a way that does not reflect what it is doing. That is another reason why I try and find a set of indicator that at least capture some of its structural process. It is a process of building and demolition towards a series of optimizations. Is there a global optimization to forex.

In a sense yes, it is that harmonious equilibrium of exchange rates governments seem to yearn for.

The problem is they really do not, they want those trends, sometimes they want to devalue sometimes revalue, explicitly or implicitly. Forex is a key part of monetary policy, as this blog and my tweets have been arguing for the past years or so in terms of Fed Funds/ECB rate differentials.

What do I mean by that chart example. It is this sense that patterns are disposable, one ends up with one, but really it could just as easily be another. But they have more meaning in equities. That is time, it is that the forex time-line is warped and deviant, but equities is more linear.

How does that help you in trading. Well, it means do not feel beaten up by the market it could very easily have gone the other way.

But it means you cannot escape from content, you need it to give some direction, some value differentials you can trade on, but you really want content native to the market not news inputs. The search for market structure to exploit is not the easy way, it is the only way, unless you can absorb losses or start-up money flow, except for the possibilities of the way the mind can sense that optimization surface.

But that is a counter intuitive process which may need counter intuitive indicator use, what I meant by anti-confirmations, if indicators are to be any support at all. From my own experience, not using indicators can be less lethal to your money than using them. But using RSI to tell you that money flow is becoming less relevant to the market and thus something you want to be in, is one such use.

© 2010 Guy Barry - All Rights Reserved.

So how does one get on the right side of money flow ? It would seem to be impossible, which means what it seems like in the market, that those with the capacity to move the market have an insurmountable advantage. Essentially you are always trying to chase the market, by using indicators to show you money flow movements.

But these are indicators developed in the equity market where money flow is part of a computational system, even in day trading. That is to say there is more to hold onto, what the market was saying 14 periods ago is important, in forex it is not so important.

What I mean is, these indicators come from structure for equity markets and do not show you much of anything on forex, in terms of temporal structure, but they do in equities, where chaos hold structure together better (i.e. over time). That is why the 'Dave Wave' seems to reveal so magically, it is simply something which is native to forex structure.

This indicates to me that it is possible to use indicators in forex, but ones which are native to forex, or at least a set of equity indicators molded to the functional reality of forex. That is going to mean though that you have to add a lot of content from the market to your trading (or get a credit line of $100 million).

Forex structure is delicate intricate and changing and it is referential in this suddenly precise and deep way. That is the moment of optimization, the point of the search for value. At this point structure coalesces to something the trader can use, but at this time it is too late, unless you have leveraged yourself into the trade. That is what money flow or market maker structure lets you do.

The difference is that if you use money flow you are in some sense of control, unless larger flows overcome you or the market will not stimulus up anymore. The problem with market maker structure is that it is unclear whether it is designed to fake you out or not, this is an intensely antagonistic process.

But the indicators you are using will let you get onto the wrong side of it. That is what it is like, how many times has an indicator signal got you onto a losing trade ?

Structure forms in a real time basis, in equities is is more like money flows around structure. In forex it is that structure appears to suddenly form around money flow and that is your problem, because that is not predictable, that makes you chase the market, because these indicators pick up that structure formation and misleadingly tell you is is referenced to something earlier, that is why the market can flow in totally opposite direction to your indicator reading.

So you have to make that reference correct somehow, assuming you are not making that money flow.

But you do have an edge if you know what the market makers know and that is the patterns they make that causes the money to flow a certain way, that is why you see things like ‘00’ as particularly important in forex, they are repeated ways to make money flow. That is why I went into 1 min, but unfortunately that is a market best traded by an very advanced AI program.

This does exist. AI does not have the technology to trade like that yet. But it seems like there is a superstructure in forex, what the 'Dave Wave' seems to get at, and that is where you can make longer term trades, which are much more feasible for a human brain.

At the same time you expose yourself to great risks, risks which increase massively over time, of new ways for money to flow. That means your stop loss getting hit, worst but not so unlikely case, and in other cases, dynamically altering your trades once you enter.

Which starts bringing you back to the 1 min chart. It seems to me the best way to use these tools is as support for the brain to sense structure forming, for those bursts that will give you a decent bite of this apple.

It means you have to do what you are told not to and reject a lot of signals and in a way forget about confirmation, that means nothing (what exactly is it that you are confirming ?). And try and use indicators in such a way that they key in with the way forex works. That is time dependent, sometimes there is chaos from equities sometimes not, that changes things a little bit.

In any approach I am looking for that coalescing of structure, rather than looking for money flow as that is what you should probably avoid doing unless and even if you are causing it, as stimulus effects fade and trying to get at forex content in a structured way. The problem with systems is they ignore content because no computer program can deal with content the way a mind can, especially if it is supported.

 © 2010 Guy Barry - All Rights Reserved.