06 September 2013

Tunneling through Value in Forex

To what extent can we consider large scale numbers (what I am calling here valuation such as 100.00/99.00/98.00... in USD/JPY), as being different from support/resistance. They do offer a tendency to stall, but they do as well offer a tendency to turn into sink holes for valuations. Is this the same as a support being broken through. If it is not, can we see support as something which may possibly not fail but even turn into its reverse and large scale numbers as being more implicated in a forex revaluation process.

That is, one is about movement and one about value. While one may see movement as an expression of value in forex, one may also see movement as being not about value at all. That is value is now expressed by movement, but it is not driving movement. That touches one what markets are doing when being pushed into valuation ranges.

->Let us try and look at what we may expect to happen, make some observations and look at a practical expression of this in trading.->
We need to ask what is failure of support/resistance. There is no certainty that support/resistance actually exists at a given time, it just seems that there is that tendency to stall, which after the event may become a tendency not to stall. That is, the resistance or support was not there.

One can say that a cut through is simply a matter of momentum. Without the momentum, it may well respect support/resistance. But whether it does or not, is after the fact. Can one even expect stalling at an expected support/resistance level, even at short time frames. I would conjecture here that one may in complex volatile ways.

On large scale numbers one could say that one could expect stalling, in an ordered way. Large scale number activity comes down to the tendency of those who place orders to see those numbers as well, that is prior to momentum. Order is imposed and may be less fragile that support/resistance.

But we can add a question of whether momentum is generally there as well on a global level, which may obviate any attributes of large scale numbers and whether the presence of numbers change momentum. But we can maybe expect stalling even here at short term time frames and in ordered ways.

But especially on large scale numbers, particularly big, big ones which haven't been visited for a while (1.5 EUR/USD springs to mind), it is also a matter of options and barriers of various kinds that can change momentum. That is a level of ordering on those numbers which may produce complex effects, particularly no man's land-scapes.

They may tend to offer the capacity to absorb all directionality. In some circumstances this may leave open the possibility of a reverse, given that in forex, flatlining events are those that may produce strong moves, from nowhere, which is what we could see here, even at high speed (i.e. a bounce that becomes a trend).

That also is about low momentum situations, but here we see these as having potential momentum, not listless conditions. However I might say that those listless conditions may be more like constrained conditions. Here we may find support/resistance not respected, as value is being imposed from elsewhere.

We could regard the absorption of momentum as potentially signalling a reverse, enabling a change in value, even in these regions - we view the absorption as doing the work of consolidation, enabling a change in momentum. So here we see support/resistance as being implicated in value change.

That can produce complex reactions, though, which may not be helpful for what support/resistance seeks to do, give clarity to trading, by giving set points to create value differentials. As we know volatility wreaks havok with such things. We can also see such a total absorption of momentum that any sustained directionality becomes problematic, for an extended time. Not so helpful either.

So can we regard the complexity of that which can produce changes as such that it becomes in effect random, no matter what. That is without that ongoing temporally extended bias which may produce order in equities, regardless (going up, with retracements around support/resistance and large scale numbers), or regardful of actual value. So basically, support/resistance may do something in general but it may not give any kind of predictability.

The problem perhaps with looking at a chart is that one is not seeing those events that actually cause the behavior, except perhaps as short bursts of activity, or patterns. But we are seeing regions to find value in, or push value to, or constrain value to, if we see a grounding to value somewhere.

However we could regard this as another factor which may give an appearance of randomness. This touches on what intense short term trading is actually doing, is it coming to grips with the actual order of forex and supporting it.

All these events may nonetheless create a certain order in the chart that gives an appearance of structure. That can be ordered and may find a view onto something, back to the intentions of the traders. If the complexity can be ordered or dealt with in some way, which forex may not allow, except in clear repeatable cases like large scale numbers (rather than support/resistance).

Perhaps we can look for something more, if we assume that we can aggregate the causes in such a way that we find a bias. However the time factor may make this impossible, as the causality is presumably temporally dependent, flickering sometimes stronger, except in as much as there is structural persistence in markets, but these tend to be be dependant themselves on inputs that may seem dependable but in fact temporally may not be.

But versus this can be seen the persistence of clumping over time, which can be seen as related to support/resistance. But do we not see such things broken through with comparative ease. It seems here we do not have much bias either (whether it has held in the past does not matter at the moment of the trade, if it does not). What we may expect is like large scale numbers, stalling on short term frames, but I would add in volatile ways.

It may comes down to a roll of the dice on the trade in some sense. But a dice which may find order in market order, in the way it rolls and makes order. That is not to say a bias, but rather, since it is not a dice, a kind of tunnel for value, that one tries to go with, with an end result at a given point. Which gives a role for the human trader, in theory, as an individual and as a group, to implicate value in some way.

So can we say large scale numbers may tend to speed up and/or stall within constraints of order while support/resistance provide change as well, they are less constrained, if the momentum is there and has not been removed from the market. Otherwise, they may look similar, but with subtle differences. In a high momentum market, that is momentum globally strong, perhaps for reasons such as the crisis, they may indeed look different.

That comes back to the sinkhole observations which started this post. That is, it looks different. But there may have been special conditions in the crisis, from where this observation particularly comes from, things may be quieter now, large scale numbers may tend to support/resistance but perhaps with subtle differences remaining.

Can we *expect* thus something different at large scale numbers. Really, we are seeing large scale numbers as being an apparent cause rather than an effect, but with the potential to be an effect as well. That is large scale number are more hard wired, but perhaps this is mostly by virtue of traders placing them to be so in a different manner than support/resistance is placed. As a pair approaches such a number, it changes what it is doing and that change may make for different behavior that if it were support/resistance.

This perhaps comes down to perception of shape of the structure of trading. But perhaps that coheres, in that intuitive way, with something that may appear or may be about to appear in the market, which may relate to value in the real world. Which of course is both given and created.

So on a practical trading view, what might one do as a pair heads towards a '00'. Look at that line as opportunity, at least to have some fun (also it gets one out being fixed to a market or time in market). Something is probably going to happen there, but here I add, this is what I tend to look out for:

a) at a very short time frame it may well bounce at the '.00', but the question is will it get deeper back into the figure or stay shallow, that is, what happens between '.10' and '.20'. The detail with which I look at this, comes from efforts in the crisis, when such levels were attacked with intensity.

I made a note then of what might determine whether it will go through or whether it will bounce back the way it came, and kept an eye on these factors after. I can't speak for anybody else, but after using technical approaches (momentum within candles), after using market hour momentum (7-8am New York Market), I gravitated towards looking for those regularities. It is not a simple issue, but briefly:

b) if it is targeting the line, then it might hit at it a few times (of course, but always worth taking note of).
c) on longer time frames it can look like it is cutting through (check the detail).
d) when it goes through it may sharply retrace in the '90s' - it is instructive to make a note of where it does this.
e) look for what happens above '50', if it gets that far, or below '50' if it retraces back.

The point perhaps really is, it gives one something to wrap fear and greed around, so one can make trading more enjoyable, hopefully. However one can also say that all these point are limits on directionality, that may increase if the market is not sharply moving (a + b + c + d -> cutting up or micro opportunities).

I should note I am not so interested in these now, as I said elsewhere I wanted a more context free approach, but from this comes other ways to find opportunity or at least interest.

One thing I find interesting is in news events, strong ones, seeing how support/resistance is respected (that is reference to previous stalling incidents). At high speed one can see quite precise coherence to such levels, can one prefix this sentence with 'especially' ?. In all events it amounts to the same limits on directionality, but with a difference in that sense of hard wiring above, perhaps, laid bare and applicable also to support/resistance.