Broker to Trading

The predictability of markets taken as a whole, which ideally is how a trader takes them, may be a function of when an equity rise happens but this is itself a short term regularity.

--->What we will be doing in this article is moving from the behavior of markets, its share or pair rises and falls over time, to its function, as a way of examining behavior, from the perspective of interacting with them.

Ideally because the reality of trading is that one tends to ignore the whole, not to mention other time frames for the one market. But that 'over time' is the key. It is the question implicit in time frame analysis, does it make a difference which time frame you examine, it there a difference significant to trading, that level of granularity of the process of trading.

The granularity of trading itself, of the process of it, is not necessarily fixed, one can trade high speed, and even do this as a human and one can stake out longer term position trades. But is it the case that these should be a similar thing, that is their process granularity should be essentially the same.

One reason not to ignore the market as a whole, is the motivation that perhaps examining another market may help you with determining pricing movements, at least it was and is for me.

That is, the predictability of the whole with reference to the part is a regularity. However we might have to assume that the appearance and importantly the disappearance of regularities is random.

Traders look for signs and signals of appearance and disappearance of regularities. But is such signalling itself any more than random. That is the quality of signalling that they signal too late, for example. That is, they are just doing what you asked them to do, describe the market functionality in some accurate sense, but not give you signals.

But they do give you trading signals they indicate what the present function of the market may do with the given structure of the market, but the problem is, that structure may not be persistent, and may decay and may be changed by inputs from random sources. Assuming that indeed the signals do represent functional action on structure that is of relevance to pricing movements.

If you try and make signals signal a tradable event, one could argue that it may be employing wishful thinking, but with money on line. This perhaps is a root for some of the feelings in trading. The euphoria, of getting away with it and the gloom from what should happen, happening, but with a debit.

But is may be that one is randomly not employing wishful thinking, if there is coherence for the conditions which make these signals of tradable events.

This is a problem with contrarian trading in forex, the directionality may be effectively random. That is, if one achieves a great precision and can see for example a regularity appearing (that is, you get lucky and you have analyzed what you are seeing correctly) where the market will take it, is not included in the information. If you have a sense of market directionality, one finds that when becomes a problem.

Why, perhaps because the event is not necessarily contingent on the structure or function given by the signal. That is, it may be an entirely different set of structural events which happen to coincide with the events desired. That is a random events like a coin toss coincidence. So 'when' is a function of market activity which may itself be random.

So are those events which play out ones which have a temporal coherence in terms of structure and function. Well, suppose structure remains and function dissipates. I would suggest this is at least as likely in forex on a day trading scale as structure dissipating.

That is the forex market may be called upon to apply various function that easily turn on and off its primary functions. This may not be the case with equities, and this may show up in equity day trading as well, which we can express as a greater sensitivity to structural changes in markets, in a bull market or a clear bear market.

A market turn event even a protracted one, may make this more like forex. This is assuming that a market turn is characterized by functional incoherence, which then finds coherence (up or down). That is the directionality becomes random, unless perhaps there are clear signs of external growth to bias it. But this may not even be the case, as rises which do not happen in extended bear markets show.

So could we expect functional changes in forex, on a temporal view to indicate something in equities. That is perhaps a demand on it, a rapid changing of function, a dis-coherence of its valuing. Very hard to tell, as its valuing process is the basis of its hardness.

It is like looking for order on the surface of the water, finding it and using to reference later movements. It might be said that forex is resistant to directionality, especially the imposition of it on it. It might even be conjectured that those stable trends are only a function of directionality in other markets. But as noted above that may be only a regularity to be dissipated by arbitrage.

So is the effectiveness of functional arbitrage (which may rule out contrarian functional trading) something to indicate the functional calls made on the forex market. This is perhaps something which might show in charting patterns. It might show as well in profitability.

One can see profitability or reduced losses in forex markets as related to directionality in the market, if we strip away all other factors and if it were possible to get at this data. So we assume that functional calls significantly and uniquely bias the market for those who are trading for whatever reason on this. That is we assume that in general the market does not favor a profit.

Does this tie in with correlations. This is a way of looking at what correlates, rather than the correlation itself. That is the correlation is not important, what is important is that correlation has occurred.

But one might note the frequency at such correlation is occurring relative to the time frame you are interested in. That is, there is every reason to expect that functional arbitrage is a function of time frame and will be more significant at some time frames.

That is potential trading information, but whether it is tradable information is another matter. In general the forex market is a judgement call, rather than an analytical call and high speed trading is the reduction (but not ad absurdium) of this.

That is the assumption is that there is in effect no process granularity, at a very coarse grained view of trading process, but it may be the case that there is at finer and perhaps significant granularity.

In stocks there is something similar, except that the overriding growth of equity, that primary function, establishes a unity of process at all levels. Now, the problem for high speed trading here is that it does tend towards working against this primary function.

There are strong arguments that the provision of liquidity and the precision of valuation it brings may help with this. But what I am asking is does this support the function whilst it may support the structure to do this. Is the behavior of the markets we are witnessing a result of impairment of the function of the markets to grow.

One can see how this is not necessarily a problem in forex, unless it is the case that forex is important to the primary function of equities and high speed trading works against this. The primary function of equities is vital to the economic well being of the world, it is that great auction house which bids up real world assets on future belief of financial paradise, and the world with it.

We may not reach paradise but successive iterations of this have greatly improved the economic well being of the world. The question I have asked is do these iterations bring an improved capacity to do this. So that is a function pointer to what may bring the next rise, which some might ask how is it possible without inflation.

It as well brings a utility of the action of the markets from 1998 onwards, in particular, but as well from 1981 onwards. Remember the market is about function, it is how we get wildly high valuations which bring such comfort, when the asset reality, is anything but. It is how we get markets without a clear function, which roam about seeking valuations.

To improve those asset valuations and get those rises to the extent it is possible, is perhaps the future we are being engineered towards, but there are alternative views on this right now. That is to say the resistance to the protests is to those rises being impaired. But it may be the case that such engineering is required to get those rises again.

There are many ways to have a revolution now and nobody complains much when the Dow reaches its epic highs (and think what 15,000 + Dow will be like, especially with a firmer asset base). But as well think what a 12,000+ Dow is like.

But in the optimistic spirit of the market functionally evolving to enable such valuations over time (and the role of high speed trading in this is...?), perhaps this could be fulfilled (even that lofty 18,000), hard though it may seem right now, as the promise of tech seems now to be almost an underestimation.

There are other alternatives of course, but that capacity to compute on future valuations does rather depend on this being the case (it is based on a belief that there can be a possible world and the market will enable this). Let us look briefly at an abstract concept of other markets and ask what could be happening here, in a very generalized manner.

In general that reference to future growth tends to be either the US or perhaps China in a more abstracted sense. Thus one can say that in general the movements of these markets are functionally equivalent to the US, including this valuation roaming, well familiar to those who know the forex market.

But perhaps more accurately they value only on a belief in future growth. Thus they rise significantly when the US rises slightly, but do not fall so hard because what moves them is directional, upwards.

In this case I am talking about asset deflation moves, not full scale recessions/depressions which have a corrosive effect on markets and their function (this does not seem to have happened, so far).

This is not a criticism, it makes for great safe havens and stability, which it itself a reason to value a market. Its functionality is perhaps the difference between a return to a range of previous values of the Dow and a new rise.

© 2011 Guy Barry - All Rights Reserved.

What kind of information would be passed between the forex and equity markets. The valuations are not themselves consistent. But the question is, to what extent does this lack of consistency make for those stable structured trends in the forex market which may be consequent on activity in the equity market.

That is, the trend is exactly the efficient processing of this pricing by the forex market. Why would this be like an Elliott Wave. Firstly, only some trends are. One might say that an entire Elliott Wave describes this process, and partial ones do not (that is there are from a functional perspective no partial Elliott Waves).

I would say this because partial Elliott Waves may in this case be inefficient processing of prices and the market takes apart inefficiency and makes this inefficiency itself efficient, that is they may signal non-continuation. That one might assume that pricing processing gets taken apart except in special circumstances. What I have noted is the tendency for them to take place during certain equity action.

This is an idea of the forex market being a source efficiency across markets, an efficiency aimed at processing pricing inconsistencies, to the extent it can. I propose this because one can interpret the crystal clear patterns at random occurrence in forex as being consequent on processing an input coming from an external source.

One might suggest that some pairs are more efficient than others, which may be a function of inputs to the pair as valuation systems, such as interest rate differentials, which may work for or against pattern decay.

Traders expect these patterns and may partly make them, thus these patterns could be used to establish pricings. But when taken into forex, because they have such random beginnings, they are ridden rather than made. But one would not expect a symmetry between activity in the equity and forex market, either in temporal terms or in terms of patterns.

If there was such symmetry one might in theory even expect trends which never ended, except for the fact that inefficiency is introduced by random inputs which degrades the trends.

However given the long term trend in EUR/USD up till the crisis one might suggest that there was an imposed symmetry between equities and what this currency was riding, namely a lack of clarity about asset valuations. Not a criticism, by the way, I believe that the predication of the housing boom was a pretty noble idea and perhaps valid in terms of future projections on assets.

But there is not explicit support for this in housing markets nor is there support for or expectation of the consequence, though efforts have been made here since the crash. Retuning of some kind is perhaps needed, not cancellation. Turing this into financial instruments was logical, but they needed to be explicitly tradable so the market could do what it does value in a functional manner, to the extent it can.

This is a market behavior view of those interest rate differentials and their effect along with valuations which were based on a bubble.

This is similar to future projections, which are a perfectly acceptable way to value assets in market, and is the foundation of wealth generation. The Dow has always risen again on a kind of re-computation of how to make the valuations it rejected in the past viable and foundational.

There seem to be at least local limits on this which may be a function of wealth generation and diffusion, but the economy always finds a way. What I am suggesting is that diffusion via house ownership, is a foundational way forward.

This is another reason for perhaps continuing with the project of widening mortgage availability (but how can one really do otherwise). But when the assets are bubbles, the assets collapse, but not the market.

Thus the market deflates, it does not crash but it has problem rising as assets have to be re-flated somehow. In a recession near depression asset values decay and the market collapses and has great difficulty rising.

That is the deflation fall behaves like a fall from a high in a day trading forex environments, it simply cascades with sell orders which are not tied to underlying asset valuations (as these do not exist in forex and in such a state of equities, they have ceased to exist, plus as noted there seem to be a decay factor associated with rising such valuations with money flow).

This is why it is important to look for signs of company growth, this will provide a basis for a future projection, assuming asset values do not eventually decay (a very important assumption in an extended market deflation period).

To project future assets one needs a belief that it is possible. Is this any way like forex. For starters one has no such belief that valuations of pairs will rise, many trading strategies simply remove such predictive beliefs and in effect believe in the random appearance of non-correlation or the dis-appearance of local correlations which may be anti-correlated to global correlations of some kind.

It is perhaps this issue of random correlations, that is they turn on and off at random (or are turned off by in effect anti-correlations), even if there is a global correlation. This may be because there is no stable long term global correlation in forex, like growth and processes in the Dow may provide for equities.

So we can still look for signs of the processing of pricing or other postulated functions of the forex market in its interaction with other markets. This is a stable global correlation but one which is divorced from pricing that is it is asymmetrical.

But we must assume that the inputs into pricing from non-correlated and asymmetrical sources makes perhaps the occurrence of these signs random and more probably the appearance randomly visible.

But one might ask if the increasing stability of such events a sign of the capacity to project future prices returning in general, which was something suggested in this blog a while ago, that the forex market may functionally do. That is its role is as a functional stabilizer, but what it may functionally stabilize is a function of what the other markets need to happen.

Now what this means is that markets cannot function correctly as systems. This does not mean they crash, that is a normal function in fact it could be argued it is a correct function of markets to revalue assets, in effect. But it does seem that markets get dysfunctional in terms of any rational function.

Now this does not mean it is not rational to highly value a company, on future projections, or exuberance, it is entirely rational and indeed it creates a rational incentive for participants to buy shares, that is to bias the market towards growth. But this capacity can decay on itself, precipitating a fall where one may not be necessary.

For example, did financial shares really have to fall as far as they did from the crisis. One can analyze statements and make an argument for present correct valuations, but on normal market functionality they seems dysfunctional valuations.

Now the severity of the move down was a function of intense short selling, which because it is a high risk high reward payoff or forced, makes for such intensity, like spikes in many ways in forex. But normally in forex, this makes for a rise, sometimes a hard bounce, sometimes a moment for the beginning of a new growth cycle.

However as we note often, that growth rise retraces, perhaps because the market itself cannot sustain this functionality, in the wake of its previous function. This is another case of inputs having random effect on market functionality, making predictions of function difficult.

So we are suggesting a kind of functional stabilizing effect of forex on equities. And in this may be the source of plunges of valuation, but they happen due to large scale structural events, not for local structural events, making tradable visibility with day trading on leverage problematic.

But why would forex do this, because of its function to optimize very precisely exchange rate differentials, it may have evolved a larger scale effect of this functionality.

What I mean by all this is that plunges of valuations correlated and asymmetrical across market in special circumstances may be highly incidental to the market, if entirely not incidental for traders.

Correlated and symmetrical would be a traders dream and would be taken apart quickly by the market, but it can exist in special circumstances but even in the crisis, where parts of the auction house ceased to exist (and have they yet reformed), there was what seemed like randomness in its occurrence. This may be because of information passage between markets.

This blog noted correlations between EUR and the market after the crisis, and during it. This can be supposed as plunges of such magnitude that a global function of the forex market was created such that equities and EUR/USD correlated.

For what reason is unclear, but complex systems do not need reasons, they just do, which is why it is so hard to gauge causality. The question to ask now, is this correlation here again or has the market changed. There was perhaps a disengagement of this causality months ago. The question to ask, was this contingent on hard wired programs in the Dow associated with growth.

primary process (Dow) - > growth - > anti-correlation with forex - > re-engagement

That is the information being passed is function, which is something that systems do, of all kinds, from quantum to biological to neural to system design itself. The issue as always is ensuring this information has any functional value when passed.

© 2011 Guy Barry - All Rights Reserved.

Are there cycles in forex such that the market moves from order to disorder and back to order. The problem with cycles is the predictability of their beginning and end and the extent of the tradable differential within them, which is a function of their predictability, with an exception of a program which does not try and predict, but searches for such regularities. However is there a difference between what are similar things.

Well, the human trader tries to predict for a number of reasons, but the one most pertinent here is to slow down the speed of price movements, in effect. The program does not need to do this.

The problem is that the forex market may not be predictable in such a procedural way, thus the program does have an overall advantage, as it is better at procedure, which non-predictive approaches to the market usually are. This does not necessarily imply any improvements in profitability, just the act of trading itself.

That is the predictive facility of human, the ability to project, may not be an advantage. The idea of intuitive trading is that one can project, except the projection does not have the advantage of procedure, it's that feeling. One of my interest in AI was creative reasoning, which is precisely the capacity to intuitively project, but to try and proceduralize it.

Let us look for some way to make prediction more procedural, whilst maintaining accuracy. This is an assumption that intuitive trading could be more profitable, in that at least one prunes the loss making trades that program may not, but with a big problem, how do you know when to trade, as money is not intuitive.

Procedure tends to build in when to trade, at a price of sensitivity. The argument is that a) sensitivity is not necessarily a good thing in forex because either the market is deceptive or unclear in its procedure or b)you will succumb to emotions and so on and become unclear yourself (all entirely correct).

Can we say that a movement from order to disorder has a predictability we can chunk at some time frame to have a level of temporal predictability. This would suggest a freezing of movement, or a slowing at some temporal level. That we have suggested is the trading advantage of prediction.

Why would this happen. Because process may itself freeze at some temporal level, possibly the level at which it operates, but it may be that the level at which it operates is totally hidden or if it is not, its detectability or functional visibility may be random.

This may be nature of flash process, and at a certain threshold this may be the source of flash revaluations. This means it is imperative that the functionality of the equity market to grow needs to be restored or at least not undone. Else the equity market collapses back to the functionality of the forex market, which is made of flash crashes, at the level of detail leverage exposes.

This suggests that the separation between the markets is a function of the strength of the process of equity to grow, which is a function of companies. But given the growth in companies in tech, why does the market not grow, because that kind of growth is based on the belief in future growth.

Suggesting the wall between the markets is based on belief of traders, but a belief made functionally concrete by acting on this belief by bidding up prices. It suggests that falling prices are a function of the wall dissipating. Thus a possible test for a new upturn, is the reappearance of the wall. However it may be the case that diffusion or at least symmetry between markets changes them, even when they are restored to functional separation.

But if as has been conjectured here that wall is a function of micro processes, then at some level it is always there as these do not disappear, as long as activity takes place in the market.

So what exists when no activity is taking place in the market. There is always some action, in liquid open markets, but we can look for such a state in a forex market on a quiet day after NY close. Then we see clear micro trends and clear small ranges, in general.

These can be seen as mini versions of the trends which appear at the end of a valuation plunge. They add realism to this, by showing how their formation is random, which is the clear problem with plunge trends, and their much higher risk.

But what is the predictability of this activity. Well, if it is random, none. But where are these movements coming from. Are they a function of the market itself. That is does the market generate pricing movements itself.

The idea is that the predictability in procedural terms is so low, that they are not trader or program generated (if anything is). One can ask if there is any point in projection of a procedural kind if this is the underlying order of the market.

I suggest there is, because this activity when it occurs is highly technical. But as always, the clarity of technical patterns in forex does not help in predicting them. But this may be their source, that is the market is ordered by technical activity.

Whether this is because it is responsive to this or because technical analysis indicates order within the market is another matter. I could suggest that at times it is responsive and it does indicate structure, but in unpredictable ways.

So if you want technical indicators to work, you have to make them cohere with times when the market itself is responsive to this. This is another way of looking at the visibility of tradable patterns.

That is some patterns may be more patterns than others. Suggesting that some patterns may have more predictability. Not in terms of their formation, in fact one might even expect that more tradable patterns may be less crystal clear.

Some of the best patterns in forex are hard to trade, those stable equity induced trends. They can be stopped by activity in the equity market and because they have their source elsewhere, they are not so clear. Yet forex can give them a great stability in their trending, an example perhaps of coherence of technical action (defined as a structured movement in pricing) with a responsive market.

This is order elsewhere cohering with structure in forex, that capacity to find clear valuations within ranges, but with a tendency normally to end suddenly. That is why such trends are hard to gauge. However I would note that once they begin, they have a tendency to continue.

That is the forex market itself takes over the valuation, but with disordering inputs from equity events. However these disordering inputs may provide that coherence which maintains a technical event in forex.

*responsive to technical ordering -> coherence -> technical event.

*not responsive to technical ordering - > coherence -> disorder event e.g. RSI divergence - now this is differentiating between technical events, but this may be appropriate, it implicitly subsumes order and disorder into tradable events and the transition from order to disorder may give signs of such events, because it may make coherence events, which may be causal on technical events.

That is such a cycle postulated above may be contingent on coherence events. But that itself may be a truly random event in terms of expected order in pricing, as coherence would be contingent on extraneous factors. It may even have that level of randomness that makes for events in the natural world.

It may be that is what is indicated in those times of random trends, not coherence itself, but the event of coherence, unreferenced to ordered market activity, suggesting there is order somewhere, but not necessarily order related to tradable valuation.

But that order itself may be tradable, but the issue is making it tradably visible in a procedural way, rather than a predictive way, which is one way of expressing the aim of this site.

Now as to what that means for predicting valuations is something else, but that is the issue with forex, what is the causality of those valuations, that is how do you value flash events. This of course seems to be an issue with the equity market presently.

I suggest one looks for the expression of such ordering activity in valuations, as regularities. This is looking for what causes what one wants to predict, with the caveat that what one elucidates may not be what one can trade. However, as noted that can be useful information.

It may even reflect to an extent what forex itself is doing, assuming a kind of systemic intentionality, given a) its role in (effectively) high speed intense arbitrage foreign exchange valuations in the real world and b) its precision in valuations and c) a systemic existence of it own, now and then merging to an extent with other markets, given their systemic vulnerabilities.

That is forex optimizes and prunes market friendly valuations on assets, to the extent is it directed to do so (this gives room for internal systemic intentionality and external effective intentionality). Now are there limits on this, perhaps the limits are on a lack of coherence between what traders want the market to do and what it is doing.

At the top of a bull market is there there such coherence, yes, but probably separated from the systemic tendency to value assets. The distortion of present versus future asset valuations creates that lack of coherence, not matter what the traders want to do.

One sees this if forex is at a confluence of major technical numerical levels and belief of what will happen versus what does. One can expect the major technical levels to destabilize that coherence further especially in conjunction with political input, and indeed one noted that at the recent high for US oil. That is $114.79, which fits with that key range of +-15 on the '00' (in this case $100).

© 2011 Guy Barry - All Rights Reserved.

Even assuming there are growth processes at work in the equity market, why is it so hard to predict the growth of equity. Firstly, it is not hard, it may be impossible. The problem is that once you begin to predict, you may make the market effectively a random process for you, therefore you are in effect gambling, because you come up against the branching factor of future events.

In fact to make a decent profit one may want a high branching factor, predictability may limit profit in a market. But this exposes you to losses. The point is one may not want to see the effects of growth, in terms of profit. But one needs to see something.

Analysis is an attempt to prune this tree of outcomes, with various levels of assumed risk, but because questions are raised about whether this is anything more than a random guess, one can question whether it does prune this tree. The non-random parts of the market may not be to do with directional share growth, even over time. To make money in recent times, one needs to know when to sell.

Crashes in recent times have taken away medium term directional valuations, but may make perfect sense from a market perspective, but may not make perfect sense from a company oriented perspective (what is the problem with US companies, very little, one might hazard).

The solution some take is to step outside of market prediction and look at the company and assume the market may do something with it. However the market keeps on intruding into this in recent times, in ways hard to ignore. So we need to consider it.

Unlike gamblers, you may be gambling on a biased outcome, biased adaptively against you, not necessarily you, but since you will probably be looking for trends, then the group of traders who can either force a trend or ride it. That is those medium term equity trends may be like volatile forex trends with deep external input, not stable internal growth trends (and certainly not stable external inputted ones, until the economy moves).

One may as well be making it harder for oneself by trying to assume that a) the past can be analyzed and b) that this analysis does not in and of itself bias the market against you.

One should assume that past data is untrustworthy in some sense, precisely because the market is generally not about continuing trends, if the trust you are looking for is that one can find directionality, which is what many want.

This is arguably true of the forex market on a day trading frame and it seems true of the equity market on investing time frames, which amount to the same thing, if the object is to make money based on the power of (forex) or lack of (equities) leverage.

Of course one can say that because the market has moved a certain way (overbought for example) it is ready to correct. Is this an assumption that past data biases the market against you (in terms of your interpretation of it)...no, but perhaps it can be.

That is, one might say that an assumption of relative untrustworthiness (relative to what you want the date to reveal) in the market's past data may point to potential pricing movements. This is simply because untrustworthiness may be more effective at pruning possible outcomes than an assumption of trustworthiness.

This is because in financial markets the data is not about trust. By this I mean at least that you are not reading a representation of a system in action, by which one can make predictive inferences therefore about its behavior. In this case one assumes that the process in the system have a persistence.

In the forex market the processes do not seem to and in medium-long term equity investing they seem in practice not to be either. They break and re-form in seemingly random fashion.

Therefore one should perhaps assume that any behavior consequent on forex or equity market process is liable not to be persistent. This means as well that it may be problematic to assume that one can make trading assumptions contrary to present trends, for example the overbought example.

This does not mean one can make assumptions to the trend, it means one must assume that the information is not about trust­. This is the same issue as assuming that one can predict pricing movements based on past chart data, and over the set of all charts. That is there is no charting data which is any more useful at predicting market movements.

All charting data may show you the patterns process produces, but the appearance and disappearance of that process is random. If it were not, the market would be predictable whether one knows what these processes are or not, unless the visibility of this effect itself is random. Now visible also means tradable visibility. That is one may see the formation of patterns, but can one trade them.

However it is possible that certain processes may be evident in their formation and if persistent, then may be tradable, if they are visible in their effect.

This is why trading on markets is partly a search for when not to trade, that is one reduces the set of patterns to tradable ones, or one tries to, but no matter how much one prunes the search tree, one does not in general have a set of outcomes one can make a weighting for.

That is one cannot oneself see the path to the solution, but it is possible one may intuitively be able to. But the market may do, but it may be it does in effect, and not by some systemic intentionality. That is, it is random in its solution path, which may be the source of the randomness of visibility. This may be especially the case in equities.

It may have a solution that has no or little relation to directional pricing changes, at the level of a pair or a security, but may be more related in terms of sets of companies, or moments of stability on longer term currency analysis.

Or it may have random movements in its search for a solution, which is a feature of simulations in computational search. This may be what you are seeing when you try to trade on day frames, or longer term investing equity frames (i.e. you need time to make a decent profit).

However it suggest that one may look for states of the market where there is non-random systemic intentionality, that is, the market is searching for an optimal solution, one may be able to see. That may be especially true in forex, but hard to trade except those freeze frame longer term views, which may be random in occurrence, and at times in equities, for example, before market turn. The problem with forex in this case, is that leverage makes those market turns hard to trade.

It may be these turns needs optimization, which is not necessarily the case during bull or bear markets. If it were, then such markets would probably not exist (or bear markets would not have mini-bull markets).

That is the market would reject such valuations, as the forex market does all the time. However that is what has happened, perhaps. Thus one might suppose that such processes do not exist presently in the equity market. However this may be precisely a test for the re-emergence of them.

That is, the process of optimization is refreshed by exactly what foreign exchange is, a very tight arbitrage diminishing process, with the arbitrage itself being diminished, to find a market rate for currencies. Is anything more sharply priced and re-priced ? Time matters in forex and subjects everything else to it.

This is not so much the case with equities, which enables growth to express itself over long time frames, rather than forex flash frames. When it exists though, if it does not reversion to forex flash happens, but without optimization of any kind, except perhaps where it filters in from forex (via market coherence).

Does this valuation wall between markets diminish when market turns happen, simply because there is little to separate these markets. That is, the test is looking for a probably non-predictable maximum position of coherence. However these are presumably non-regular occurrences in equities, thus some predictability may exist in their de-coherence from economic data.

But the issue is their re-coherence. The problem is depressions, there is not much in the way of relevant economic activity. Real economic activity, is perhaps itself random in its success.

That is, if you define economic activity as successful activity, producing cash streams. Those funding sources tend to dry up, that enhance economic activity (that is an input on cash stream to a company to produce cash streams, hopefully with a net increase, i.e. the activity is unmasked) and at least give an appearance of non-random predictable behavior.

However at some point, this is no longer the case. In this recession, funding sources for some tech did not seem to disappear. Thus this kind of enhanced activity continued, it seems.

This is why it is useful to look carefully at jobs data, which may reveal the kind of activity for the market to cohere with, which we shall define as unmasked real successful activity.

If the reader recalls, at the beginning of this mini-bull market there was encouraging signs of unmasked economic activity this blog noted, and indeed the market did seem to cohere with this, that is we are assuming something more happened than money flow. But the point is, we are looking for larger scale signs of such activity, which may come from other than the mining of a creative moat.

The question is, does such larger scale structure still exist, was its longer term dissolution masked by the asset elevation that seemed to be a cause of the crash and can we expect more than mini-bull markets (it is 14164.53, which we are seeking). That is can we expect that stable growth from the economy that makes stocks not so unpredictable, without a) restructuring the economy or b) elevating assets valuations by various means.

It does seem that b) makes forex more stable, or at least its funding conduits, like EUR/USD, but this was less the case during the recent mini-bull market. It might be expected that a) might make other pairs more directional, if done well, at least at the time of coherence, which is perhaps another related test for a turn and even of large scale structure re-emerging, surviving or adapting.

->Perhaps for an evolution of tech into what is generally seen as more stable company structure, in its own way (the adaptation, as perhaps creative moats are viable in terms of re-mining, from the minds behind them).

The question to ask is where else is sufficient growth going to come from, to do what the Dow has always done in the past, and surpass its all time high prior to an intense revaluation to near present asset valuations, at best.

At this point (the all time high) or somewhere near this point future valuations would predominate. But if this is supported by real creative moat growth, we might even get the next real rise up, with continuing unmasked success. It is always a mix in the economy, but do we need a sustainable core such as this, to rise like this.

© 2011 Guy Barry - All Rights Reserved.

The illusion of precision...this relates to the sense that the safer you make your trades, profit rapidly reaches zero. Thus are profitable trades imprecise. The assumption of gambling in forex, that one looks for patterns and trades on them, scratching non performing patterns is imprecise on one level.

It is precise in the sense that it follows a set of rules precisely, grounded in past performance of such rules. One can be criticized in this case for not following these rules appropriately, that is the imprecision of such trading.

The imprecision is that one might say that one does not not need to scratch trades, that is this method is imprecise with reference to the market. Rule sets assume markets which have a regularity, but it seems that the forex market may not have these kinds of regularities.

Such regularities as it does have are brief and rapidly dissolved by the market. Indeed they can become traps quickly, for those who makes trades on the assumption of regularities, but is that not precisely what happens with rule based pattern trading.

That is to what extent does rule based pattern trading conform to regularity hunting. Rule based pattern trading makes assumptions about the persistence of regularities on a coarse grained scale. Regularity trading makes assumptions about tradability of regularities on a fine grained scale.

It may be that in equities the two are the same, but in forex this may not be the case. In equities it may be that there is a scale up from fine to coarse grained, but one can assume a reduction of precision as one scales up.

But in forex there may be no scale up, the precision is only in the fine grained trades. This means the risk is related to the consistency of structural regularity, visible in theory to the trader. That is trading on micro structure may be less risky than assuming macro structure in forex.

But of course one must trade them algorithmically, and accept large losses as one does this. One cannot adapt these micro-rules to the market at the speed the market operates at, the problem all human traders face. But the answer in forex is perhaps not to then use equity based coarse rule scale up methods.

This simply makes the market a random system for you, which it may not be, as the rules you use are not derived from the market, they do not compile forex functionality. But of course the advantage of forex derived indicators is that they might.

But it may be the case that they will only describe as there is not that persistence of function in forex that there may be in equities. Is there an advantage in description. It will not give predictability, thus it may only act as a filter of when not to trade, which is something past data can tell you.

Why can past data tell you when not to trade and not when to trade. When to trade is based on future events. When not to trade based on past data assumes persistence of function and regularities on a coarse grained scale. But do these not exist in forex. Indeed. But the fundamental function of forex may not be based on persistence, it maybe be based on strong computational processes.

This is what forex based regularities may describe and tell you that the market is at such a point in a function that in the past has produced a certain effect. The problem is that when translated to trading views, this may be essentially random. This leaves open the possibility of representations which deepen trading views, an aim of this site.

Thus the exploration of this site to map forex trading views to market process. However the antagonism from market makers may break any such symmetry.

If one kept out such antagonism, then one might expect that one would retain symmetry, but then one would not have an optimizing market, one would have a market geared for growth (which symmetry may be a precondition), but without any, in forex.

That is:

Asymmetry = optimizing = non persistence = interconnected micro regularities.

Symmetry = non optimal (growth in value) = crashes and re-optimizing via forex, creating micro tradable structures.

Thus one might suggest that one looks for evidence of symmetry in equities, for signs of a possible new cycle of growth. Now the state of the market to which it goes from bear to bull may not be one that has any visibility, hence the random nature of the new rise. However might one expect ranging, but ranging with a tradable order, not random peaks and bottoms.

Market turns in forex are deceptive because they look at lot like continuations of the trend. It is a similar question, as to how one tells whether a pair will spike down a '00' or bounce or turn up, assuming some fractal structure in forex. But if this structure has origins elsewhere this may itself be deceptive, unless there is a tradable ordering in its appearance in forex.

It may be impossible to know, hence the random nature again of market turns, that is on a long term scales the transition from a bear to bull market.

But what I am suggesting is searching for new order within pricing changes, that is, is there anything in the movements down for example to suggest a change in the structure of pricing movements.

This is extremely hard to do real time in forex, that is one has to accept scratched trades, but in a major market turn this may not be so intractable, one might expect. But then again, the ranges may make trading on this in equities equivalent to forex trading on '00', in terms of extreme market risk.

But in this case investors have an advantage as they may not wish to trade such a market, but most certainly would wish to trade a market turn. The problem with trading a downturn, is that one may get on this at the point of an upturn or consolidation.

But in the case of a '00' one has one things in one's favor, the action of market makers on pricing at those levels, even on the most fearsome downturns, but in unpredictable ways, as the most fearsome downturns may be a prelude to consolidation or a market turn.

It is not a predictability, but it gives one a trading view. Thus one might want to consider whether there is something like this to give a perspective on directionality.

Whether there is ordering within or it is just a random process with loosely connected islands of regularities, the way the market can change is part of its unpredictability and at least its appearance of randomness.

So can we look for greater coherence in connections of regularities, as a signal of increasing order in the market ? The question is how this would translate into pricing, but again it is a basis for saying a market has become more tradable. This is the movements from order to disorder that may cause asymmetries in the market, especially if the market has changed.

A market predicated on reduced debt or at least serious control of such recourse to the bond markets, and clever investment from government sources would perhaps be a changed market, but that may be something for the future, or is may take time for it to translate into a new bull market or even an ordered ranging market.

This does not mean such a market would evidence the huge rises from 1981 onwards, which had perhaps another predication. In my opinion these were arguably excellent and revolutionary ones, they caused massive asset re-valuations, some of which may be unsound but many were not to the extent that a new vibrancy to and resurrection of the US economy began, which still very much exists.

It may be the case the market has made them unrepeatable, and thus the time to toil with grounding the basis for the markets to rise, is upon us. But the market can bring sunshine, as is well known, when you least expect it. Whether it is only or usefully when you least expect it is a question targeted here.

© 2011 Guy Barry - All Rights Reserved.