Broker to Trading

In what sense is an equity retracement different from a forex retracement and a commodity retracement. In a bull market, a forex retracement could be seen as part of the functioning of the bull market, to the extent that the bull market is founded on asset valuations.

That is, the forex market in this case absorbs the valuation inconsistency in a) a rising market and b) a well founded rising market and c) a non well founded rising market. That in, in some cases, rising equity markets are not consistent valuation processes. One could go further and say that in general they will eventually prove their inconsistency with a massive retracement.

That is the more consistent they are the bigger the fall. That is a general feature of markets, they are not geared for consistency, given the fact they are designed to strip away bargains, which is precisely what participants are looking for, or trying to create.

So is it possible to disprove this inconsistency, to stabilize markets this way. In theory, one could use a market which more closely mirrors the equity market such as the commodity market to absorb some inconsistency. This tend to be what happens before a crash. That is the commodity market works to prolog the bull market, and indeed one may see at this stage the final peak. This suggest it may be unwise to stabilize prices in commodity markets too much.

However they may have this role, precisely because their pricing is so grounded in external inputs, namely demand for wheat, for example, the weather and economic growth causing demand. That is there is not much that can be controlled from the market.

The forex market I might suggest will not absorb valuation inconsistency. What it may do is prove this inconsistency. Essentially these pricings are not optimal with reference to the wider economy forex is constantly made consistent with by traders.

However there is no way to fix the forex market. There is no reference of valuation to inflate. However it may be argued that reducing leverage may have the effect of allowing asset inflation in the forex market.

Is pricing of silver and gold asset inflation. I would suggest not. It is more like a free pricing, which retraces hard and fast with no predictability. Random re-pricing removes inflation as a pricing attribute.

In this case retracement is like spinning a wheel to find a new pricing. There is sufficient structure within commodity pricing for example that its repricing is not a random pricing event.

The fact the forex market cannot be structured in such a way as its pricings conform to desired outcomes is entirely why it functions during massive asset retracements. This makes it hard to trade, but first and foremost it is a market for valuing foreign exchange transactions, with traders along for the ride, given how hard it is to force valuations.

This means it is the interconnection between the valuations of economies themselves. It is hard to see how this could be structured except in some kind of world economy (the internal needs of the countries can add random inputs). However one might expect the retracement from this price fixing to be massive. And indeed it was, there was a quasi-world economy in existence before the crisis.

So how could one have a world economy with sound asset valuations. Well, would one want this, it is a bit like wanting one stock. One might expect that such a world economy might not recover from a retracement for a very long time. There would be no way of referencing valuation.

That is valuation is inherently inconsistent, especially when it references future valuations. That is a bull market: highly inconsistent valuation, but consistently referenced. The forex market may absorb inconsistency in reference, if it has optimization properties. A bear market is simply non-referenced valuation, at some stage seeking it, and then finding it and then moving towards future projections then collapsing down to present valuations.

Is a bear market consistent. It gets consistent at bottoms and at the point where it begins to rise again, it seems like a forex market after a session closes, it seems quite precise. But what about the valuations between.

Well, that is the issue with bull markets, these seem to lack a way to value them, simply because there is no stable differential to value, that is the valuations between may not reference the valuations at the bottom and from the point of the fall.

This is why it is so hard to pick that bottom, most likely you will find a range that is not referencing anything but itself, given that the timing of the rise is random. In forex patterns and range do tend to reference past data, but the reference itself may be a random occurrence.

However the internal structure of that reference, those patterns I have looked at on my other pages, may have an order such that one can get a bias of some kind for the reappearance of that reference. This may not help in equities, as the reference may have an order from what the forex market is doing, that is it may be a functional component of the market.

This suggests those pairs which do not have such clarity are functionally different and it raises the question of whether a bear market is or is not functionally an equity market, it may be that which re-creates such a market. This raises the question of whether there is information passed through each cycle, and thus whether the market gets more efficient at re-creating the bull market.

Bear in mind it may get less efficient, however one can see external structuring, like technology, programs, at work which may bias it towards at least a direction of increased efficiency, if information is passed. This may make it harder to detect whether a new bull market is beginning, unless one could factor in that change. That may be a factor of increased efficiency of company formation.

© 2011 Guy Barry - All Rights Reserved.

What determines the value differential in a forex trade. Let's assume that there is a state of the market such that a value differential will exist. Now we can assume that there will be various processes to enable this. These processes though will not necessarily be processes which maintain a value differential.

Why should we assume that there are processes to facilitate the value differential. External factors may appreciable change the value of one pair relative to another. Traders and big money may do this as well. What if the internal processes of the market are doing something else. What one might assume is that they are always doing this.

Meaning cohesion is a random event, caused by random sync. Creating perhaps a sudden trend, a feature of forex, one reason why programs are useful as they can capture these with facility. Would this differ from a structure growth trend. I might suggest these are caused by the internal processes of the market itself. That is the structure of these processes has become compiled as growth itself.

So growth in forex is precisely the growth of long term structure. I might suggest that even this dissipates and reforms. So where is the persistence. Is this like a computer program or something like the way information may persist through a singularity.

That is the information content exists because of vast iterations over enormous times. But where would this be in markets. In possibly what high speed trading looks at. Again this level of detail is perhaps the internal processes of the markets at work.

High speed trading is agnostic to direction formation in a sense (thus speeding over the random nature of this formation), it just wants a structure to work with, which means it may be suited to the formation and dissipation of internal process, but suggesting that forex process does not care about direction either. This is a matter of interest to traders trading on the market as well, as this may tend to collapse to looking for the same detail high speed trading does.

The first analytic on my function trading page on this site is based around this, my sense of this is that to be consistently profitable one needed a bias into the market and to be trading when this happened and to know it was happening, which gets us into programs again.

But as I noted before in theory the human trader has an advantage as long as they do not collapse their trading to a facsimile of high speed trading by following a rigid rule set. It is a facsimile because one does not have the advantage programs have of no emotions, no need for rest and unwavering attention.

But I might add the human trader may want to hold on to these as they are part of cognitive action and therefore possibly of problem solving and learning, which is what trading on the market is one hopes a process of.

That is one assumes there is anything to learn in the formation and dissipation of structure, that is this process itself may be random, in which case there is nothing to learn except how to gamble on it, which does not seem to be effective on this market.

The answer to some of this is whether trading on the market as a human on such structure formation has less drawdown than programs, but still manages to keep a profit coming in.

How does this differ from process in equities. The growth in equities is perhaps directed by companies directed towards equity expansion. But these expansions tend to be based on future predictions of equity growth.

These predictions dissipate as well and reform, but with less facility than forex growth. Which is one reason why forex may be more reliable, if one can trade on no assurance of long term directionality. That is forex, one acknowledges the retracement.

Can one see an advantage in equities to the reign of the retracement, which has been a feature since at least the crisis. Can one assume these long term growth process do not exist. They do, it is just they are not being valued by the market, either because they cannot be, as some feel, or because the internal valuation processes of the market cannot do this.

So can the equity market value them, or is is perhaps that the market is generating ways to value them. How could one value tech. It is flash growth, based around flash moats which dissipate.

Those little start ups express this well, they are little spurts of growth, most of which evaporate, but as an aggregate they make a market of potential growth companies in the true sense of the word, company growth itself, pure growth, which retraces, but in doing so can create giants, which now even exceed oil companies.

This is not being directly valued by the market, but it is future growth itself and that is something the market has presumably compiled in its valuation of the companies listed therein.

But can forex retacements reference value. Fundamental and technical analysis attempts to do this. The first tries to find the input of external valuation into the market, the next attempts to see the appearance of flash valuation differentials.

It suggest that technical analysis would be more successful in forex. But only if this analysis is grounded in the processes of the market. Exactly, as noted, this means that one must use technical indicators like instruments examining phenomena, that is not as some kind of expression of prediction, which is not necessarily in forex. That is it may be in equities, especially long term, where many of these indicators come from.

Meaning these indicators are highly compiled instruments of prediction, given certain conditions. But meaning as well that compilation may be evaporated if it ever exists at a given time in forex, that is the issue of learning in this market.

So can one use indicators if one looks for times when forex is like the equity market, specifically when is it made like the equity market by vast changes in the equity market (crises, mini-crises).

Well, that is what I was looking for in the crisis and it seemed like this was the case. But those plungers of valuation do not go directly into the forex market, there is a strong barrier to information passage there, perhaps itself caused by the evaporation of process.

That is when the forex market is like the equity market, it is like the equity market in terms of directionality of valuations over relatively longer times than normal, but these are so unlike the normal valuations processes of this market. As noted they include such events as RSI divergence appearing to have a non-random predictability.

However they depended on events in the equity market that were random, but just the vast effect of money flow made more persistent than usual. It was not the case that a huge change in equity valuations would show up in the forex market (the predictability issue), the changes seemed to be at the level of process itself, that is the way the market valued (as indicated by RSI divergence perhaps). That is my interpretation now of what I dealing with then.

But there may be a way to get at valuations from the aggregation of high speed process, which may be something a human trader can note and learn, but may as well help determine those value differentials. There is no question in forex of profitable value differentials, this is its great attraction from past charting data, but the question is the non random nature of when.

But that question raises the question of how, if one want to try and get away from trading on the appearance of past structure, and assuming when from the structure of this structure or taking drawdowns.

In equities that when is taken care of by how being answered by time and directionality, neither of which one has in forex (one cannot assume temporal stability and one cannot assume directionality). One cannot assume process stability either but one does note the formation of stable process over charting data that is not at very short time frames.

Again, this is the attempt to bring that temporal stability into forex, which can exist with equities. But the difference is that the structure which forms in a stable way is random. That suggests the need for human ways of focusing on markets.

© 2011 Guy Barry - All Rights Reserved.

Is it the case that the forex market is less or more risky than investing in the S&P. One issue with this is assessing risk. One way to look at this is not at the market per se, or models of the market, but at what the market does to valuations. On a day trading scale, the equity market does not necessarily add to share values. But it may have small growth spurts.

That is, it may evidence growth processes which may increase share valuations over time. Might one expect these to be different from such processes in forex. In line with the arguments in this site, yes. But one might suggest that what one sees in equity processes are not the beginnings of long term trends, they are signs of such trends. That is there may be less information content in equity market day trading process.

That is, in forex one sees the beginning of pricing trends, there are certain patterns the market conforms to that one can make a reasonable guess that a market turn is taking place, but a market turn which will will almost certain probability turn at some stage in the opposite pricing direction. EUR/USD has shown how a long growth upwards was massively retraced in the crisis, other pairs show ranging over long time frames.

Those massive pricing changes during the crisis were an aberration to pricing behavior in the equity market up till the crisis, but they are not now, suggesting that those growth processes are either absent or that the market is in a state related to the beginnings of growth.

One can thus still examine the market for signs of something like a market turn. It may be this fundamental equity directional change, may show up in the equity market on shorter trading frames, as it may be a forex related process.

Forex over the long term does not necessarily grow valuations. It can, but whether it does may be a random process, but it is not necessarily so in equities, but as noted its beginning may be. The search for precision, may be a valid search, but it needs to look not at randomness.

The assumption of equities is that over time, share valuations will grow, sometimes like those growth spurts, but spread out over years, compounding equity valuations that you happen to have a share of. The company grows big and your shares grow big.

Does this happen anymore...but a whole school of investing is dedicated to this assumption and it has always restarted in the past, but with changes in the way the market functions, it seems and what companies are to be valued (again that may be a random process, suggesting that market predictability may only be about when to exit positions).

Companies which are regarded as hard to value have nonetheless done well since the crisis, and tended to be affected by this revaluation to a much lesser extent. I am not suggesting a lack of correlation, but the fashion in which the crisis market revalued companies as sets was interesting. It may suggest an approach to risk.

With forex one tends to assume that long term directional valuation is not going to happen. Let us assume that $ appears historically undervalued, why cannot one assume that it will grow, thus carefully invest money in this assumption in the forex market.

Because forex seems to be about optimizing valuations, and it maybe that a $ valuation that does not grow, is perfectly acceptable to the market, as an optimal value. It will range about though, there is no goal state for this optimization. It suggests that every valuation is optimal, which is an assumption of efficiency.

Those growth spurts even on longer term trades are discrete they do not seem to evidence the continuity that equities evidence. But one knows this and does not tend to treat forex pairs like a security. However assuming a security behaves like a security can lead to large losses over time. Thus there may be an equivalence of some kind.

The problem is that investors tend to look at large companies whose valuations are moved about by large bid and sell orders stacking in a short period of time, and then moving on. But they tend to look at them with the assumption that they are like those rare companies which can be found by various means which will grow.

In fact what they are looking at, is companies which behave like forex, but without optimization, which makes them risky. It might be said that the market right now is evidencing this. This is not only not an investing market it is not a trading market. Without optimization there is no directionality all.

It can be simulated by keeping interest rates at near zero, but this seems to produce valuations which range at high speed after being supported. This is what I meant by the fading stimulus effect.

However one can have a directional equity market which is not about optimizing. For example, long term trends in valuations of companies are not optimized. If they are about future projections, they are certainly not optimized, though it may be imagined they are.

Time and again it has been shown that the future may show these valuations to in fact be totally non-optimal. But are they optimal if they are grounded in company statements and the compiled knowledge of how the market computes this over time. This may be the case.

Thus financial analysis as practiced by some may be about optimization processes within companies. This may be what the market coheres with, to project future conjectured optimizations.

Are those optimizations within forex future conjectured optimizations real. Well, the problems in finding a grounding in such valuations in the way companies can be grounded in analysis, suggests they are not. But the process itself may be and that may be something to trade on, with some reduction of risk.

The problem for equities is finding that analytical optimization on shorter time frames and that process may not be in the equity market, but in the activities of companies.

This optimization is something that arguably US companies do particularly well, it can perhaps be seen in endless activity directed to a goal, that itself changes. As well as something to find in analysis, it may support those attempts to engineer companies from their very beginnings as ideas to be turned into wealth.

However, of course the emergence of companies to be successful may not have predictability, any more than it does once they are in the markets. This again is something that does not have an end point either, but the market can of course effectively create an end point, in terms of share valuations.

To maintain an optimization, one needs something to value, and preferably something existing, i.e. something that may particularly be looked for in emerging companies. The problem is valuing, but then again it may be not what it is, but whether the market can optimize it, which comes back to company structure as much as content. This suggests that any company could possibly benefit from engineering.

In terms of the initial question, forex over the long term may have safer assumptions of risk, but that does not necessarily make the market any safer. If one assumes that the equity market is a bull market and one can find directional bias at the levels of companies or basket of companies correlated to the market or non-correlated with this market, it may be safer to invest there, but these assumptions need to hold over the time frame of your investment.

In forex one tends to assume a trading market and work with this assumption. However at the level of process there may be arguments for looking for companies in equities by analysis, such that one is looking for long term growth, if the market functions over time to do this. It may not do it today, but one still has to assume it will over time. Forex does not make this assumption.

But the forex market is regarded as a highly risky trading market. Reduction of risk in forex comes down to reduction of trading risk. This is still a future contingent, but the assumptions are of a shorter term than equity assumptions, assuming that short term analysis of securities is of a similar practical risk to forex.

In practice it tend to be as very similar technical methods are used, thus whether or not the forex market is or is not like the equity market (i.e. questions of risk) becomes in a practical sense irrelevant, it is treated as if it were.

© 2011 Guy Barry - All Rights Reserved.

How do you find support and resistance...the problem is that looking for support and resistance is as stable as projecting any pricing valuation into the future, for any instrument. That is you are still expecting a valuation based on future contingents.

This is especially true in forex, where the complexity of the immediate future is artificially increased. That is forex valuations are complicated by trading assumptions.

The trading assumptions desire simplicity, namely somehow to maintain a steady increase or decrease in a pair's relative valuation for a sufficiently long time. However the projection of future valuations on a market which does not conform to such projections probably itself adds randomness to the market.

In equities if one projects a future valuation, one is in theory adding stability to its pricing, if it is grounded in an analysis of its statements which are based on compiled knowledge of the markets functionality and the market does indeed function this way.

So what can add stability to forex pricing. In theory using market compilation. But what is this in forex. I have looked at market functionality to say that for example forex may optimize. That does not necessarily give one valuations, but it suggests that the way the market moves may be how it works. If it were a trending market it would be more like equities.

It is not, the trend reversals tend to be hard but not so deep, for example. It is not that the market is rejecting valuations, it is rather that it is exploring valuations. Again the capacity of this market to resist forced trends suggest that it does not inherently look for deep changes in relative valuations.

So how does support and resistance fit into this. It might be suggested that the clarity of support and resistance reflects this pricing process, but it is not support and resistance at all, it is simply rejection of non native process and/or the exploration of pricing. Projecting support and resistance assumes a memory in pricing, but it may be that pricing in forex does not make use of memory at all, as some studies may suggest.

In all events, I have noted that there does seem to be a long term memory of some kind, a memory of reference, but because its utility seems random, then one might assume this process is not about pricing references either. That is the apparent clarity of support/resistance could easily be the same pattern but with a very different reference thus a very different pricing.

What makes it a different reference could be a random event in the market or some functionality of the market. The randomness could be part of a process of optimization, as this process requires jumps out of local minima, that is solutions which are not optimal on a larger scale. One might note that the comments of governments at pricing extremes may happen in conjunction with non-optimal pricings, to have an effect.

One did note that the comments of Obama that reversed the pricings of oil, were effective to an extent because oil was reflecting pricings which were way out of sync with the state of the economy. I might conjecture that commodities are also about optimization but the range of valuations is freer, that is growth is strong here.

Is is relative valuations which constrain growth in forex pricings. It did not seem to constrain growth in EUR relative to USD when both economies were growing, up till the crisis. As I have noted on this site, pairs seem to evidence a maintenance of structure over time, which may reflect either the way traders deal with them or the fact that some may optimize more than others.

Less growth of any kind, may perhaps mean more optimizations. What traders want is growth, but the problem with growth is it retraces because it becomes divorced from real pricing, either a commodity out of sync with the capacity of a people to pay pump prices or security priced above a saturation threshold of future pricing (suggesting a commonality of retraceable valuations, that is where pricing will cause money flow opposite to the pricing).

What does this suggest for underpriced assets and the markets. It suggests a greater sensitivity of commodity valuations to this underpricing, but perhaps a greater precision of forex valuations to this, but a greater coherence of equity valuations to pricing extremes.

This suggests a utility for support/resistance. When one uses fundamental analysis one assumes that this system reflects the external world, defined in certain constrained ways, as inputs into the system. That is, one assumes a symmetry. When one uses technical analysis one assumes a symmetry between the system and points where one might expect saturation of valuations to occur.

That is support/resistance is a possible way of signalling an area where the market may change direction, just not necessarily what this direction may be, based on a cohesion between fundamental and technical analysis, as analytical methods applied.

Whether this happens or not may depend on the way the pair has tended to compute growth and valuations over the long term. This is like having a way of projecting changes in a company statement, which is what some analysis seeks to do. It is a possible approach towards use of compilation in the forex market.

© 2011 Guy Barry - All Rights Reserved.