Broker to Trading

Intervention has a recognizable effect on markets, it is generally characterized by an initial surge which quickly fades, but there may be effects further on.

To maximize its effect one should not sterilize it. Sterilized interventions were commonplace before the crisis.

It seemed then that growth was occurring and that it was necessary to control it and control effects on currency values.

It was like a well regulated machine, that fell apart completely in the crisis to such an extent as the very money markets through which these activities took place ceased to function.

That is sterilization existed then arguably as part of a way to use a structure created to control money flow in such a way as a simulation of growth processes was created.

Now this does not imply intentionality, it is just growth was desired and it was felt that it could be controlled.

Simulation of growth processes though is essentially stimulation by money flow, that is interventions. So what went on could be seen as stimulation.

Now the question is was this causal on the crisis. That is, were assets mis-priced because of this (and re-priced in the crisis).

Probably not, it was more a consequence of this mis-pricing, but it may have led to the enormous breaking of structure characterized by the crisis.

That is the pricing itself of assets was like pricing in money flow events in the market, rather than pricing consequent on companies growing and the re-pricing was like money flow re-pricing to company grounded pricing.

That might suggest the crisis was not a depression but rather a massive retracement to find good pricing levels to grow (suggesting that retracement are part of the growth process itself in markets).

More like a massive re-adjustment than a deep cyclical downturn.

There has been a clear example of the effect of stimulation after stimulation, with no clear support from growth in the very recent past.

Though I believe growth is there and it is a stabilizing force, but one might assume that the ratio of money flow to growth if it could be thus expressed would be abnormally biased towards money flow, relative to any economic conditions.

What are we seeing, we are seeing mini-crises. The effect of cascading money flow is so normalized that one almost expects what would be a most unusual market event, those huge drops followed by surges upwards, which fade rapidly.

This is partly what I mean by a market which does not function for investing, but it may be functioning well for enabling future growth.

One might say well, cannot one ride those waves up and down. Well, the forex market shows what this is like.

Basically it is extremely hard and is a reason many lose money there. It is extremely hard because it is not a ride up or down, that is simply a representation in a chart.

The equity market being like the forex market does not make for easy trading. Without the clear directionality of growth processes at work, one is left with all the elements which make trading only a high risk experience, sudden dramatic changes.

Can one take lessons from the forex market into the equity market. Well, the clear lesson is that money will be lost. The problem is not so much knowing what happens after stimulus, it is more what happens before.

How do you ride waves, you do not, you sink. One needs structure to support one. The problem is that money flow does not provide structure.

However I do believe that the strongest structure to trade on in forex is money flow targeting a new growth process. Thus if QE2 is intermixing with a real growth structure, then this is possible good news.

This provides both momentum and directionality, for an economy this means all the good things, for a market it means tradable moments.

The question could be asked are tradable moments good for the economy, yes because there is an assumption that growth is adding value. This is reflected in traders with different time frames being active to buy and sell.

The suggestion here is that sterilized intervention may have been an structurally enabling factor on the crisis, and may be a functional route for suggesting that maintaining interest rate differentials on an unsound asset base was a major contributing factor.

But it suggests as well that it is entirely reversible and the kind of stimulus since the crisis in effect may actually be reversing it, in tandem with naturally occurring company growth in the United States.

One might suggest that controlling growth is an illusion, one only controls a simulation of growth, at a certain stage the market seems to restore this to what it is, money flow.

The real growth happens no matter what, fortunately. I might suggest as well that not only cannot one control real growth, but one does not need to.

Can one control the way a company is successful. Well one can perhaps see signs of this success in its financial statements. But what actually is behind these figures is not a formal system, it is a creative act, for which the metrics are, the growth of the company.

© 2011 Guy Barry - All Rights Reserved.

One element of a set of financial statements that is regarded as important for showing a possibility of share growth in the short term, is dynamic changes in cash. That is, there is an important sensitivity to the output of money flow in a company in terms of its relationship to the set of companies.

The set of companies is dynamic, but it may be related to forex. The set of companies is those companies for whom the company in question can be regarded as a money flow set. That is, money flow should be regarded as a set in terms of its function in equities, not as flow in any sense of the matter.

So what is it one sees in forex, where money flow is highly important in terms of valuations. That is, to what extent is the function of money flow in equities transposed into forex. Can one track by function. That is an interesting question. One might expect it would depend on the extent of the transposition.

But what is this transposition. Well, it is not about exchange related activity, which is the problem with the anti-predictive value of such fundamentalist analysis in forex. It is about investing/trading, that is about the active investors and traders and their pursuit of value differentials.

So what is it that is being transposed as investors and forex traders tend to be separate. Well, the hedge funds. That is the transposition is a trading method by those who can make investing and trading the same. That is the functional symmetry.

The markets only tolerate such symmetries for a short time, this is part of the flash nature of forex. Symmetries are broken fast in forex. Are they in equities. That is, does the nature of the equity market inherently provide stability for those essential symmetries.

Not if it is like the forex market, that is money flow with growth added, rather than growth with money flow added. But in general yes, perhaps in terms of the frequency of infusions of growth into forex. High frequency infusions means more structured trading moments.

However that transposition is to an extent forced, and the markets do function mostly seperately at the level of day trading anyway. One sees plenty of movements in forex that are not in sync with equities.

But that seems to be the norm and the fact that these moments of syncing exist and that they exist in a structured way suggests to me that they are internal as well as being a feature of very big structured trading.

What I am suggesting is the way companies compute on cash is not compatible with forex and this lack of compatibility creates movement in forex as well as being the basis for the lack of symmetry.

Equities cannot escape from companies, but forex can. The fundamental computation of equities is the value of company equity, but forex is a complex optimization over value itself. This suggests that what happens to equity valuations in forex is that they are abstracted. Which suggests that one cannot track companies in forex. But one can see generalized effects of the set of companies.

But perhaps one can see less general consequences in the kinds of sets one looks at in financial analysis, that is the set of companies to which there is a sensitivity in terms of cash flow, for a given company.

The troubling feature of equities though is how the movement of the Dow is now especially based on money being moved about, rather than from the exciting and wealth creating and Dow energizing way, of equity growing from creative action in companies.

But I do think this is happening anyway. As I have noted before the remarkable feature of the US economy is that it can grow in dark economic circumstances, indeed great movements have been made this way. But one might expect it would obscure the transfer of readable information between markets.

However these effects have been the case for a long time, and a full restoration of information transfer might require a new wave of company growth.

Why might one want such transfer of information, well because the more precisely valued companies are, the better for a functioning equity market, the assumption here is that fine grained processes in forex are part of this valuing process.

It is that same process, the essence of trading, that even if one can make the market move one always wants something that the market want to go with. That is one wants awareness of process to reduce the risk of one's trades.

The concept of speculators pushing the forex market is not entirely tenable, because the market resists this just like equities resist upping the valuations of a share that is hyped up. And by resist I mean retracements in both markets.

I suggest if you use equity investing and forex trading together you are syncing with the way the markets interact. It suggests a fundamental rationale for the effectiveness of financial analysis, especially the granular methods used by Graham and his followers.

And it suggests the importance of the forex market for computing that value in equities to great heights. Riding the markets suggests awareness of process, even if highly intuitive and the more explicit this is the safer the ride.

This makes less necessary the need to force the market to accept valuations and dealing with the computational consequences of trying to do this. This applies to the equity market on a large scale (i.e. the crisis) and to forex on a fine grained scale.

© 2011 Guy Barry - All Rights Reserved.

I have noted that the Dow may be a series of coarse grained computations, but the forex market may a series of fine grained computations consequent partly on the equity market. Why might this be the case.

The computations of the Dow seem to be long term directional processes evolved and consequent on hard fundamentals, that is both economic and computational fundamentals (in a sound economy these should be similar).

However the enormous forex market does not seem to work this way but these markets do seem to have a relationship of flash causality, the question is how is this changing. To perform flash causality, there needs to be a fine grained process, but more importantly to compute value there needs to be fine grained processes.

But for there to be a value there needs to be coarse grained highly inputted processes. Without this you get money flow valuations, back and forth like waves, boosted now and again by differentials and floods of cheap money.

The crisis was useful to reveal the functionality of the market, the aftermath can be as well. The question right now is how much does company growth support the Dow versus the effect of QE2.

This is a question about growth versus money flow, from the forex market directly into equities. Why, well because the aftermath has made the equity market like the forex market, as Hardanalytics.com has often remarked.

So what has happened to those long term computations. This is the question referred to often in Hardanalytics.com. Is keeping interest rates so low like this for a most exactly extended time, damaging the functionality of the market. If it hurts this process yes.

But is this process being kept alive in forex. That is the question. I am suggesting it is. I am suggesting the forex market is stabilizing the effect of interest rates, it is the great absorber of risk. Risk I suggested is the invisibility of processes.

So are interest rates increasing or reducing risk in the forex market. It might be expected increasing as this absorption may increase the lack of visibility of the markets. Is risk intuition neutral ?

By usual definitions of market risk, it is not taken into account, but on this concept of process invisibility it most certainly is. Intuition in trading seems to be a way of tracking market processes in tradable ways. Intuition is a highly important part of forex trading, as it is not amenable to rule based analysis.

If you rely on rules, you have to gamble. In fact by trading this way you are trading with maximum risk, except for the fact that structures reappear with some regularity, that is you get lucky based on rules derived from domain knowledge.

That seems to be part of the reason why so many lose money, such structures are deeply unreliable in forex (but they may be more reliable in equities). Great forex traders may trade this way, but I might suggest they use something more which is that intuitive feel for the market Hardanalytics has discussed in the past.

It may be they simply have a large and flexible rule set, but the application of such a method suggests intuitive actions, because that kind of high speed real time association of rules is something no computer can do.

That is they reduce the risk of an inherently risky method. I have suggested that forex may be more amenable to structure tracking, or more properly a feel for function in the market, thus in theory it could be less risky than equity day trading.

I am suggesting that trades exist in the moments when money flow and growth processes interact, to produce trends. But I am suggesting as well that these are less stable. But I am suggesting as well that they are more well founded as they reflect the raw computational stream from the growing US economy.

Trends before the crisis tended to elongate, but they also had a tendency to sharply end, but not reverse, trapping one in at the top, for example. Why, well perhaps because they were no growth processes, they were money flow being presented as growth processes by using interest rate differentials, resulting in a huge collapse.

Suggesting this collapse was showing in the forex market. Again, absorbing risk. But a risk created by doing this, by hiding or more properly simulating processes. But future process streams - the micro optimizations contingent on processes over long periods of time in the equity market, which may be decaying.

However micro growth processes in forex decay all the time, maybe the decay of long term growth processes in the Dow is a good thing, generating new processes contingent on closer symmetries between forex and equities, forged in the crisis.

This is an idea of the forex as a cauldron of processes for evolving processes for the equity market, an optimization over structure. It is as well an idea of how to get that new Elliott Wave going again. It is as well an argument against trying to control the forex market, even if it were possible.

One could ask whether the decay process is itself important. This is a feature of natural systems, but one must be wary of using such analogical reasoning, as the Dow is a product of minds in action and long term systemic evolution (assuming such systems evolve at a much faster rate than natural systems). What is this decay process in the markets. It is release of structure for renewed computation.

That is there is a finite amount of data to compute on in the markets, a lot of it is noise. It has been noted that there is noise with information content in the Dow, noise contingent on fractional Brownian motion. But I am interested in data which is not noise.

That is, computable data and the act of computation itself, which may be the same thing. That may be what the markets are, or at least the processes existing within the market. Investors and traders are looking for this, but investors most specifically. Traders are looking more for processes.

But this suggests directionality in market processes comes from such release of structure, which is the essential premise of the analytics on this site. Again, this idea of investors transposing functionality into the forex market, but a transposition enabled by the market.

It suggests that investors are looking for a key, which is what was suggested is happening in terms of a financial statements with the set of applicable financial statements. This seems to be expressed in terms of changes in money flow.

But it suggests that investors activate this to an extent as well. But not perhaps as an imposition, but rather as a way of activating processes to grow equity. Without them, the decay processes would have no information content, and no tradable direction.

So what is a financial statement capturing in terms of market processes. It is the endless desire of those behind them to key in with growth processes. It may be the market and economy behind it takes care of this given coherent creative output. But again is this idea of active creation of such a key.

It maybe the statement captures another view of this process. Thus one is reading the market with a statement and one inherently reduces risk when doing so in a way in accordance with financial analysis.

There is no question such methods can find you companies which will grow their equity over time and take advantage of compounding. The question is though what does one do with a market which is not being structured to the extent it can be externally, to do this.

That is interest rates raised, and investors looking for companies whose equities can grow over time. The point here is not the sums involved or the number of trades, it is the time and the presumed fact that this has contributed to the creation of the black box processes in the Dow which work presumably to expand equity.

I am suggesting that money flow is not that important to structure, and hence to the assumed formation of programs of some kind. Thus the size of the forex market is may not be that significant.

Arguably, when the volume in forex dramatically contracted after the crisis, it was a much more significant instrument of economic process. This suggests as well that the money flow trading in the Dow, has a neutral significance to the Dow. 

It is about functionality, and as the Dow become a cascading waterfall of money flow during the crisis, the forex market became functionally very important to compute value.

But it always has been and arguably the valuation issues of the Dow increase this - growing equity to the potential in a financial statement is a very strong example of valuation at work. But it is hard to see how value can be restored without a working equity market.

© 2011 Guy Barry - All Rights Reserved.

Is there a way to make a static analysis of the forex market with the kind of assurance as with the equity market. That is, is there a way to perform the equivalent task of analyzing a financial statement.

In a way yes. That is because analyzing a financial statement implies a pair of assumptions, one concerning what the statement tells you about the company and one about what this data says about the market.

The assumption that the market will be viable to compute this internal company data is vital, as the crisis has produced a market which does not seem to work in a traditional investing sense.

Hardanalytics.com has argued that keeping interest rates low may have hurt this process. But that re-functionalizing seems to be a consequence of processes in the forex market, if looked at in a computational sense.

Thus the question arises, is it possible to look at companies to determine movements in the forex market, that is for forex, company health is something static to look at, just as it is for the equity market.

I would argue that it certainly will show you structural information about the forex market. It will tell you whether growth processes are strong or weak. And that may show whether the equity market is being effectively re-functionalized by interest rates via forex. The assumption is that any economic growth in the market right now is a computation on companies, especially those with a creative moat of some kind.

The crisis can be described as a process of destructuring, but it did not seem to remove the way companies are keyed into the market. That process seems very hard wired. The reason I say this is because of an examination of the way companies reacted to the crisis, in terms of share price.

I grouped companies into a series of classes, the best maybe 30 or better percent reduction, a good set at 50 percent and so on. There were distinct classes.

An examination of share price afterwards showed a change in the slope of their trajectories, for the very best, of a relatively small amount. In fact it might be argued that there is some evidence that it did not really hurt these companies it simply took the slope to a more realistic trajectory.

This suggests that what was happening in forex at the time was a re-computation of some kind, a correction in the true sense, but more particularly the market itself making a re-optimization.

As I suggested in my most recent post, there are internal processes of optimization in the forex and equity markets, or more particularly nested in the forex market for both markets. Perhaps the source of this is the long term valuations of analysis and investors and the market has simply made it an internal program, but one investors and traders have to contend with.

This is like AI, though emergent programs, but such phenomenon are not unknown in complex systems, and the Dow is perhaps the most complex non-natural system in the world (and perhaps the most complex system, apart from the human brain). It might be argued that the effect of the crisis was to make the forex market primary, that is that EUR/USD could float the stock market.

The re-emergence of growth processes from companies in the US though may be re-establishing this primacy of the stock market, expressed in the re-emergence of USD, particularly against JPY. That has been a contention of Hardanalytics.com for a long time. It is perhaps expressed in a closer syncing between the markets and USD/JPY and less evidence of structure breaking in USD/JPY when the market tanks.

What might one expect to happen in a recovery from the crisis. Well, firstly, I would not say this is a recovery from the crisis. The crisis was the recovery, if one wants financial markets to reflect accurate valuations. But it was a different kind of revaluation from irrational exuberance, for example.

Well, why should one want markets to reflect accurate valuations. Let us say markets are forced to reflect inaccurate values. That is a market of mis-pricing. One would have to gut the market, remove those programs and those people who try and find accurate valuations over time.

To do that one would have to remove the forex market, imagine trying to trade there and ignoring pricing accuracy or exchange currency and ignore pricing.

The reason one would have to gut the market, is that precisely this was the case in the run up to the crisis, not mis-pricing as such, but mis-priced assets. The market revalued them. That was the crisis.

So experience suggests that the markets will not allow asset mis-pricing over time. If they do, the correction would make one wish they had been accurately priced, with all that implied. Now interestingly, it may be the case that assets were accurately priced before the crisis, in terms of future valuations.

But if so it was a valuation based on a present valuation. One of the mechanisms of the market seems to be to collapse present valuations to true values. That is exactly looking at the bottom line and deducing those future income streams may not happen. Is that what happened in the crisis.

It was something further than that. It was more like looking at what lies behind income streams, that is the values of assets. That is the true nature of the crisis, asset revaluation, in the light of the reversal of assets into liabilities (which they may have always been). This asset revaluation had the practical effect of generating margin calls.

What triggers a share price being grounded in present income streams. Normally it is a drop in sales, thus the projection of sales into the future changes radically. That is the way the future price is computed changes, since analysts normally use an algorithm of some kind. It is normally not about revaluing assets.

Share prices re-computed the first way can easily recover, and it could be argued that market corrections are normally like this, the market recovers and the share price makes new, but corrected highs.

One could even argue that it is necessary, as those future projections could not be sustained. But why, well, it would essentially need a vast expansion of asset values, to generate these sales, if one views the company as an entity producing equity.

So what the crisis did was totally remove that belief from the market, by essentially removing the assets to believe in. One might say when it comes back, the market will recover as a device for expanding equity. Does USD reflect asset values, perhaps.

It is an interesting view of USD/JPY as JPY still contends with sunken assets. I would suggest the creative dynamo in the US would save the US from this fate. However companies with a creative moat, do not necessarily need such an expansion of assets.

But is there a better way. Well, a market which is more accurate, more sensitive at predictive valuations for future share prices. A necessary condition for this is accurate asset valuations, well this has happened. But the cheap money pumped again and again into the market reverses this, unless the market is carefully processing this (which it might be, perhaps with the forex market).

This is the concept of Future Markets which I discussed in that post. But it is as well the concept of a restructuring of the way the market computes. That is, instead of backstopping valuations with assets, sidestepped by a projection into the future of income generated by these assets, one lets the market compute value (what forex traders try and do).

What is this exactly, it is functional investing, it extends trading out into the far distance. Long term investing needs only those processes deep in the heart of the Dow to survive. But the sensitivity of such analytics could maybe be increased.

Such techniques usually need retuning and each time you do this you take a risk because the causality of the market is unclear. In some sense this moves investing into the forex market. That is one needs to take account of currency movements and how they reflect changes in the structure of the markets.

This is how one makes adjustments to investing instruments over time. But one has to wait for the action to happen, for example warnings of tides of money flow from RSI. But perhaps one can look for the changes that make the tides. It is not prediction, it is more sensitive reading of structure, to gauge its function in terms of market directionality. If a market is more attuned to creative moats, it may be that such a sensitivity is necessary.

© 2011 Guy Barry - All Rights Reserved.

How complex is the forex market ? Well, the premise of this site is that it is intricate, from internal and external processes but there are tradable processes based on the temporal interaction of the forex and equity markets. At one level the forex market is not really complex at all, it is simply antagonistic.

As many point out, the odds are stacked against you as a retail trader and essentially many say that you try and remove yourself from this antagonism by trading on longer time frames, taking a loss until you hit a winner and going with it. There seem to be processes there which overwhelm the antagonism, or do they.

That is the problem, there does not seem to be much asymmetry in forex, in terms of time frames. That is the same things happen at 30 min as at 1 min or 1 day chart. One would expect this. For example there is evidence that the short term equity market is functionally different from the long term market, and evidence that this distinction does not exist in forex.

That does not mean that short and long term forex time frames are the same, it just means those long term processes in the Dow are not significant at the day trading time frame. However when comparing the day trading time frame in equities with forex day trading time frames, I noticed apparent interactive processes.

In my most recent post Forex and Stock Time Frames I conjectured that these processes are those long term processes in action and this is a tradable proposition. They get the market moving and given certain fundamental assumptions they may give you a possible direction.

This gets you away from having to bet to a significant extent. In practice the direction is simply a bias towards looking for a viable bounce if the market is moving in a direction you believe not to be consistent with processes in the economy at large.

I do believe that the forex market is remarkably keyed in with economic processes in the economy. The idea is that the trend started at such a bounce (which may begin because the instrument is oversold for example, this is the money flow required to start growth processes) may have a reduced bias against it continuing, but it may be it will not reverse down into a counter bounce.

It may indicate when to get off as well. Here the symmetry of forex time frames helps, as one can translate this up and down frames. All forex processes can be derailed by outside events, though if these are contingent on economic growth processes they might already be showing up in some forex pairs, for example in the pre-news announcement sensitivity discussed in an earlier post.

Thus even if you had a foolproof method, then you would still be exposing yourself to a high level of risk in this market. And that antagonism is coming from expert minds, it is highly dynamic and responsive. As well, the capacity to take huge losses for an eventual retracement in your favor, gives one a powerful capacity to move in forex.

So how do you reduce risk. Well what is risk in forex. It could be described as the fact that there does not seem to be processes one can track to trade on. There are in the long term Dow, there does not seem to be in short term Dow (day trading) or forex, long or short term.

Those who follow some schools of financial analysis and investing essentially remove risk, in their belief, based on a significant body of evidence, that such companies *will* develop to the potential of their equity seen in their balance statements. These are powerful processes of predictable directionality over time. It is is just they do not seem to be useful or visible in sort day trading time frames.

But if there there are long term processes that show up in short term terms in forex, but that express themselves as dynamic processes, one does not need to track (which antagonism and volatility makes very hard at short time frames) but one needs to watch for their formation.

So, in essence using such methods could in theory reduce risk, because one is in effect trading on risk. The more support you have for this from indicators, the less you have to rely on yourself.

I have even argued that very short term time frames are more stable than longer term frames. But the risk remains. At very short term trading one is up against that antagonism.

What may help is to trade on a long term view on short term time frames. That is looking for major structure breaking events, for example, on the 1 minute chart. It actually gives you a sense of risk because one can see the extent to which structure one can rely on is not present.

Structure that one can rely on will be a feature of a longer term chart (as one is looking for structure breaking). Of course the fact structure breaking may temporally be a longer term process, does not mean it will not have short term signs. That is a very interesting way of looking at forex. It means in theory you can trade long term processes based on 1 min structure.

The question remains do you have to separate market maker activity from these processes. Perhaps not as the market makers are seeing the same thing, you just have to be aware of what they tend to do and use this information to go with them.

What market makers are doing is designed not to be something you go with, but the idea is to use hard market data, which you can surmise they are aware of and will go with, to go with them as well, a their trading is mostly detached from yours.

It is like confirming a trade hypothesis based on market functionality with market functionality. Your risks become, to an extent, your function to trade with, on the market.

© 2011 Guy Barry - All Rights Reserved.