Broker to Trading

Can one expect process to produce regularities that are tradable. That is, are they insulated to a sufficient extent that they are not subject to erosion.

Since I suggest they are the cause of these regularities, the answer would seem to be yes. One might ask is the market at times more or less coherent with its own processes. Is this systemically a valid question.

Yes, because those who input into the market, are not only not aware of the processes of the market, they mostly try and impose their own view of what the market might be doing.

One might ask though are those processes such that they are not suited to trading, that is they will not produce any regularity that one might follow or adapt, such that one can create a differential in your favor over time.

That is are there processes attuned to the needs of a trader. Firstly what is the market exactly attuned to. The forex market is attuned towards the effect of vast sums of money on valuation.

A package or aggregations of this is inputted into the market either intentionally or for other reasons, and traders try and ride the effect on the market. That is, they try and guess what the effect of this will be on the relative valuation of a currency pair.

Analysis is either based on the inputs, fundamental, or the outputs, technical. However given the severe issues in predictability, what the market does with these inputs and its processing of these outputs would seem to be of most importance.

The stabilizing effect of the forex market rapidly counteracts this effect. If it coincides with a growth process, then a stabilized growth may occur, which erodes to finally fade with retracements.

It may as well coincide with a large candle driven fall, though, that is in effect these buy orders, trigger a massive retracement.

--->Or it may do what the market functionally does, stabilize this valuation into a range.

So the question is, can the market function to stabilize, thus as a trader one can ask is the market such that this cannot be enabled and thus traded.

One does not necessarily need to ask this of the equity market. Even as a day trader one is looking for the function of the equity market to change valuations. What this suggests is that the placing of large orders may function better in the equity market to change valuations on a day trading scale.

That is, this effect known as money flow is more in coherence with equity market function than forex market function. But one has to assume at the short time frame the money flow input is in coherence with the longer term valuation path of the security.

In fact one might hazard that this lack of coherence makes forex in effect relatively more tradable, except in times of equity short and long term coherence.

What about commodities. Oil seems like it can enable stable growth processes, as long as there is coherence with its valuation in the economy. That is, it is limited by its price at the pumps and certain other factors.

This does not apply to metals in the same way, but it can be questioned how internally stable those valuation increases are. I find that the pricing behavior of metals is not strictly like those of currency pairs, despite dollar mirroring, and has certain features of commodity valuations.

This applies to forex as well, at price extremes, of course, where market valuations start to count in the real world, and does not strictly apply to equities.

However, because there is a point where the valuation of a security takes off on valuations based on future expectations, there is a point where this ceases to be the case. Now those valuations seems difference from those based on future valuations, especially on the return to this state. Thus in this sense it does apply.

So is this stabilization. Might this suggest the importance of this process even in equities, and the equity market considered as a whole. It gives as well a view of the behavior of the market as a whole since the end of the century. Arguably equity valuations return to optimal expressions of their underlying value, but not over time.

However, this said, equities do seek higher valuations. This does happen in other instruments, but it tends to be driven on speculative fever rather than in a belief of the underlying future worth of it.

As noted, EUR/USD up till the crisis did behave just like this, and here it could be argued that future belief in the economic paradise of the Euro, with a US soaking up demand for its services and goods drove valuations higher.

The behavior of the pair since, with the inability, despite all the expectations for it, to breach through 1.5 in such a way as it could technically continue back above 1.6, suggests something like the collapse back to present valuations, where it has ranged so far.

For USD to go higher, especially referenced to EUR, arguably needs a removal of expectations for EU growth contingent on US demand. In term of JPY, it needs a sense of optimal values for USD to be higher.

Companies in the US grow, but the market needs to have a sense that it can value of future valuations, that is what matters. When markets rush to great heights, it is like a suspension of belief, which brings good times for so many.

But it is real. Avoiding massive retracements is a another matter, but there is a persistence of wealth and the capacity to re-generate wealth through retracements, to put it mildly, in fact one can argue that this is precisely where the wealth is generated, that gets valued by markets.

To lessen retracments is to make use of the interregnum, to make the assets valuations underlying the rush upwards, sounder. An unvalued asset (in terms of USD in markets) that can generate great wealth over time is what investors seek and this is what the US itself looks like to this blog, in some sense.

Investors want the unstable valuations as these go high, but they bring as well great risks of retracements. What do stable valuations do for you, as in investor, well they bring the slightly increased probability of higher valuations in the investing future, as long as they are stable and not dead, either to the market or to the capacity of the assets themselves to grow.

The higher probability investment still lie in those companies which have not yet been taken high, but have the capacity to do so, which is why investors seek them. Why, because with these companies one can presuppose the function of the market to grow their equity. The market itself may reset itself to this state with retracements, thus enabling a kind of growth anew, for itself and countries.

But to do so now, needs a belief in a future growth in the market, as a system to value. The belief of this blog is that this functionality remains, but it may need changes in interest rates.

In all event for economic growth now, is there an alternative to the US, Germany and China. That concept of engines still presumably applies. But the idea is to make it such that the US can continue to grow and innovate and improve its asset base through the next market highs, and thus reduce the lows, if this is possible.

The concept of asset bubbles to sustain market highs came undone in 2008, and it is perhaps best not to restart this again, but it seems so far it is not possible to do this. Valuation on future expectation is not strictly speaking an asset bubble.

© 2011 Guy Barry - All Rights Reserved.

Is there a reason to trade on a shorter time frame rather than a higher time frame. There is considerable support for example that 15-30min is a good time frame to trade on. It seems to give one space to assess a possible move by a pair, that is whether it actually will make a move and possible directionality. This does not mean one knows which direction it is, just that one has a directionality.

There may be an argument that each time one prepares for a trade, in effect, one is starting a new game. That is one cannot assign probabilities relative to previous trades. This is followed in practice by those traders who painstakingly prepare for each trade.

In effect one is only looking for micro-regularities that appear at the time one makes the trade. It might be said the more painstaking, the less one relies on repeatability, or at least recognizes that repeatability is unpredictable.

I might suggest that human driven trading is like this, or becomes like this, it is the search for micro-regularities appearing there and then, but without the express recognition of this given by high speed trading, with at least this exception, that one might assume the human mind can find order a program cannot or does not even try to.

This is in effect a recognition that there is no structure by which certain formations can be judged as likely or not to appear. It is saying that forex is a random system.

However I do believe that it is not, that there is a determinism of valuation, and of the role forex plays in more deterministic systems, that is equities and to an extent metals and commodities. The problem is that the determinism of valuation is not linearly directional, so the effect is random.

If you try and follow its non-linearity, one gets chopped about in such a way that risk increases as well as costs, whether by the markets valuation or by unpredictable inputs into it. Because these inputs are unpredictable, there is a moment when it is very hard to value them, namely their appearance.

But they do get valued. It may be that they are accurately valued at the moment of their appearance. For example, in news trading the input time can be known and the input value can be guessed.

So why does not the market do what you expect it to do. Because the forex market values in patterns, or is expressed in charting this way, it cannot express a valuation instantly, but it can express this valuation in both momentum and initial directionality, and seems to.

In certain circumstances one may get the directionality one expects, but to get this one seems to need a market expressly valuing something else, that is, stuck in another set of patterns.

But one can say that 15-30 min reduces the chopping effect, it is true, but at this time frame one is in effect avoiding the determinism of valuation, unless it saturates this time frame (high speed trading wants that chop, and tend to feel it can deal with it).

There is perhaps less reason to believe that 15-30 min defines an order of directionality that one can enter in on in shorter time frames, I might say with some controversy. It would tend to assume there is some directionality inputted into the market from this time frame, which is unlikely as this would assume that the market does not value on patterns.

As one extends out into 1 hour and longer one is searching for an investing order. On 1 month there may be an order, defined by the functionality of a pair, but this may change over time. One very short time frames, the order may be defined by the regularities themselves, that is they are independent phenomenon, which take place at this time frame

It suggests in certain cases one may find an optimization over time frames for certain kinds of order in the market, though this may change with time, which brings unpredictability into longer term investing decisions.

This suggests one can strip away the time frame in a sense and just look for the regularities, which is what does happen.

It may be the case that the market needs to be in congruence with these regularities. That is a probability, except it is unpredictable and needs inspection there and then.

It is in news trading when the market is valuing something else and snaps to the required valuation, which is good if you have a position on in the right direction, before the snap.

That is, the underlying structure, not the numerical value, is what is important, if you have a position on, which is another matter.

This suggests that this kind of structure may be independent of time frames. Time frames analysis I might suggest can add to confusion in forex analysis. But it need not, if it is grounded in the market. So is there an argument for looking at 15-30min.

I believe there may be stronger arguments for looking at longer time frames, because those flash orderings that can exist in forex may show up there, that is the ordering which reference longer term valuation patters.

The argument here is that those patterns which forex values on have a greater stability over time, but probably no more predictability than those at shorter time frames. If such order does not exist in shorter time frames, one might as well look at the 5 min or shorter time frame, where order flow rules, with the drawbacks and benefits of doing this, i.e. the tendency to be grounded by the market.

In all events at 15min and out, one is at least looking for potentially more stable regularities, but whose appearance is still unpredictable and one can bring into play trading on assumption of regularity, that is the imposition of order from this time frame to the market. To do this one though in effect looks for the appearance of this regularity, and scratches those trades which are not congruent with this.

This suggests that for large positions, longer chart time frames may be more optimal, as long as one does not look for the behavior of valuation in equity bull markets, rather that of bear markets, especially this one, where the instability to value, creates valuations like forex valuations, but probably not the same.

Are bear markets always like this, possibly not, as past bear markets tended to be valuations in recessions, where there was little except valuations ranging about present asset values.

As this blog has noted many times, there is no apparent recession in tech, rather asset expansion, it looks a bit like a gold rush sometimes, but those assets either are hard to value or value like ranging forex valuations, with huge extended spikes up and sometimes down.

That stability in asset valuation does exist, but it seems that companies have yet to take their equity valuations to that point again, as it tends to be a stability of future valuations in a bull market, else they range about present asset valuations of some kind.

Again it is a spike but it is stable because it is based on future valuation expectations which seem more stable than present valuations either because of recession impaired earnings or because assets are hard to value, which is like a forex valuation, except perhaps with less order.

The spike in the case of future valuations only becomes such, when the market itself, which in some sense as an aggregate behaves like forex at high volume, crashes. Otherwise it is the spur which drives the market forward. After the crash the market ranges but perhaps later more than movements about asset valuations, namely ranges to find another way to express future valuations.

© 2011 Guy Barry - All Rights Reserved.

Is a growing economy and quantitative easing equivalent, that is, can one regard QE as simulating economic growth to the extent that the market may mirror this to start growing of its own accord.

A related question is this, is it the case that the growth of the market in the run up to the crisis could be seen as having any foundation. That is, is there anything approaching growth processes persistent in the market. The question is really perhaps, if the companies of the United States grow, can the market do anything with this.

I have noted that the revaluation down of assets during the crisis may be a pre-condition for this to be the case, but holding interest rates near zero may be actually counterproductive, but QE may be productive.

Can one regard the behavior of the market during the crisis as a restructuring process. Specifically can one regard the clear RSI divergence signals as a sign of this. That is, can one regard RSI divergence as in general a source of restructuring.

This is a functional view of these signals as it suggest that they function to restructure the market, rather than simply as a sign of this process. Why might one say this, well because they have a relatively high probability of being successful. That is, one is assuming internal market processes. But was the behavior of the market during the crisis exactly external market processes.

Perhaps not, it may be exactly that the internal market processes worked, once it became impossible for funds to support asset values at their highly unrealistic levels (one description of the crisis). The market worked to drastically revalue assets downwards. But it maybe be that the market was valuing anyway at these valuations.

That is the market could be characterized as one where core valuations, the basis on which internal markets processes functioned were highly segregated from the valuations at which the market functioned.

The market does not really care in a sense about numerical valuations, indeed the core investing principle is that one wants to buy cheap companies, that is, low valued companies, which  the market will proceed to value highly, or more properly which the internal processes already value highly.

But what is the valuation, it is a valuation on a structure, that is it is to an extent a valuation on a structure of the market. It is an assumption of investing that one is finding hidden away companies, that is companies which have a structure segregated from the markets. However I suggest those companies more properly reflect the structure of the market, its core valuations.

That is there is a strong rationale for investing in such companies, they are the processes of the market itself at work, that is they have a survivability which is high. They are part of the valuation process of the market itself, which is why it is very important not to degrade that.

Those companies which move about do not have such survivability, that was borne out by the crisis. Those companies which survived best were those companies which had such a structure, more particularly one born and evolved from the valuation of the market itself.

That is companies can be segregated, but the market will bring valuations back into line, and RSI divergence is a process to do this. That is, it is a revaluing process, it is market processes valuations diverging from external processes, exactly. Its probability is whether such processes are viable.

Given this one can see why companies fall faster than they rise. A fall in valuation will be speedy given that it is consequent on RSI. But more particularly, it may reflect the necessity to destroy what has given the valuation stability in the first place.

Taking the market as a whole speedy steep revaluations may not be a bad thing and possibly highly necessary for future valuations, which is what growth and investing is about, to find evolvable growth already there and makes new growth.

But to restart growth, money must flow into assets, else one can have extended periods of asset deflation. Repeating this after those steep revaluations may make sense. Interregnums may exist, but it may be possible to shorten them.

However it may be necessary to examining the reasons why this shortening may not be be happening, even given the health of the companies of the US economy. What one might ask, is a drag on assets revaluing upwards and a way to encourage rapid ranging.

In a market where money flow rules, ranging would be characterized by steep falls and rises, because the market is correctly valuing, on money flow, this may be be a situation where RSI divergence is not prominent. Interest rates in the past have ranged the markets, but slowly. They have a large scale revaluation effect on the market as a whole.

But what is the effect of removing this from the market. Might one suggest that interest rate policies in the past have had the effect of controlling rapid ranging, a smoothing on this process and therefore a restriction of the occurrence of RSI divergence. Might it be the case that QE in conjunction with the effective use of interest rates, might be advisable.

Markets have an existence outside of themselves, they consist of the necessity to trade and sell commodities, to share ownership of equity in companies which operate irrespective, more or less, of the economy and to exchange currencies.

But the range of valuation within this is determined one way or another by the markets and it is the case that macro controls on this ranging should be examined with care.

That is, there may be conditions necessary for QE to work effectively to restart the market, rather than adding to sharp rapid ranging, which may increase with each dilution of QE.

Floods of money sent in and forced out will tend to create unstabilized valuations, but if the valuation process of the market exist unimpaired, then this may not be a problem. It just makes for an accurate market which has the same trading and investing issues as forex.

In fact it may be more accurate than before the crisis. The interesting idea is that this may make for a more accurate market when the economy takes off again, assuming persistence at least, and maybe process.

Another point is that this may be the time for a well targeted, well expensed investment project, to try and infuse growth into this process where it is sourced in many practical ways, in the wider economy. Markets may be hard to influence, but this is not as impossible a project. That is the right kind of stability which would persist.

© 2011 Guy Barry - All Rights Reserved.

What is the effect on valuation of maintaining an interest rate differential within a pair.  It might be expected that it biases directionality and gives what seems like growth.

That indeed does seem to be the case with EUR/USD, historically, at least up until the crisis. However it does not seem to be the case with USD/JPY, suggesting that there was something else at work with the Euro, growth contingent upon political developments in the EU.

But more interestingly it was perhaps a process dependent on the creation of a single currency market. What exactly does having a new market for a currency mean, well it means ways to value it need to be found, to those external references the forex market creates (for those on holiday as much as traders).

It could be suggested that the way this pair found valuation was to simulate a growth process, that is, it was in effect a search which found easy directionality, because there were few constraints on its valuation.

It is a state found in the market on a daily basis, in cases where money flow has sharply reduced valuations to a point where a trend begins, but not a bounce, but one well structured.

It is now difficult to value this pair (or perhaps to assume valuation) except structurally, just as it is very difficult to value companies in a market which is based on the movement of vast flows on money rather than on valuations based on the engineering quality of its statements (the effect of 10 years of information processing).

One might expect that financially pristine companies, within the constraints of the present economy (assuming these can be separated), would express structural order in their share movements, but be highly ranged. Similarly for currencies.

I have suggested that forex may contain pointers to equity valuations. Can one see in the lack of trended long term directionality of EUR/USD since the failure of the attempt to push it in the way it could be pushed prior to the crisis (something this blog warned about).

That is can one see pointers to a company led growth, but in the structure of its pricing behavior. That is, is there an increase in precision, is quality of optimization being evidenced in its pricing behavior (given both these currencies are conduits for flows in and out of the stock market).

What is quality of optimization. Let us assume it is a process that has a symmetry wherever it happens. Its quality is not anything to do with a valuation at a given time, its quality is precisely its solutions over time (that is the way the equity market taken as a set of statements works).

That could be seen as an optimization order in its pricing behavior. Note the money flow ordering given by USD/JPY discussed in the Analysis page and the lack of it in CHF.

To expect quality optimization, one would expect a structuring not based on order flow, not chaotic, not deterministic, but based on precise future valuations. That is, one would expect ranging, constraints on movements.

To grow is illogical for a currency pair, from the perspective of optimization. What kind of ranging, well, ranging perhaps like the gap between market closings. That is, a search for a valuation on which to value for the next open.

A world in which the US is getting its fiscal house in order, would be a new world order. The recent aversion of the probable disaster of default, along with the incentive given by a slight downgrade, suggests this has a greater probability of happening. That is the political system seems geared now toward making previously improbable solutions.

It suggests as well, the business as usual, that bias toward money flow enhancing assets values, may not be a state which can be returned to, at least in the same from it was.

For me that is reason for great optimism: optimized fiscal policy on top of the underlying strength of US business. The business of the US is business, as they say, perhaps now is the time and the great opportunity to focus fully on this.

The place for growth is of course in companies, this is where wealth is created, from those owning equity and seeing it grow. That means the stock market and security valuations. These are not meant to range.

It might be suggested that if quality companies are ranging, those companies which take flight, might have retracements. This is like the state of the economy up till the crash, which was essentially ranged and then massively retraced.

Within this range there was movement for large currency ranges, which equated to stable trends, such that they seemed attractive for long term positions. Whether this was actually the case is another matter, because the assumption here is that major retracements will not occur and it might be the case that one might to consider the opposite belief.

I might suggest that an economy growing in the *possible* manner it has now could exert a greater functional control over forex. However possibly increased randomness in the market could still make for major long term trending moves.

Would this hypothetical world be good or bad for the business of forex, relative stability I might suggest would be positive for it, volatile markets may seem to have profitability, but this is not necessarily the case in practice.

© 2011 Guy Barry - All Rights Reserved.