Broker to Trading

This activity, news trading, is not the first trade I ever made. That was me going by the book, doing a demo trade, seeing my trade going well then hopping into live on that trade. But news trading was the first sense of going with the market in forex. By necessity, because the way the market moves, is determined at the time of release, to the extent that forex can ever be determined.

Even so, the market as is well known, can react in contrarian ways to news. For me, this was the perfect news trade. FOMC, around say 2:12pm EST, or a little before (when it was released at 2:15pm) placing a position on:

a) either a belief based on analysis of some kind in what the news would be and its effect on value. b) what I was seeing in the quiet time just before the pair goes highly volatile.

This is the nice time, in some sense, because the market is so still. This assumes that such a quiet time will exist. But it has had a tendency to do so. I worked on the assumption sometimes that what the direction which was still in this stillness, would point to the actual direction, post volatility. The problem with this, is that the volatility can extend. In fact I note in more recent times that pairs can oscillate wildly for a relatively extended time.

The issue with this, is if one trades on this market, it become difficult to tell if a move is a reaction or simply an oscillation. That is, a move lacking reflective order, if I can put it like that: it moves because it moves, not because it had just moved. If I would differentiate EUR/USD from NZD/USD I would say that EUR/USD can do this, perhaps tends to do this, but with more order than NZD/USD.

That is: if there is a clear move, even with an initial feint opposite, EUR/USD may respect regions of support/resistance in its main move, in a more constrained way than NZD/USD. An interesting issue, is to what extent EUR/USD may conform more to NZD/USD.

But one needs an entry point. To enter on the fly, is problematic because there is indeterminacy in:

a) the direction b) the time in that direction

But the thing about this, is that it points to a reality of forex, at all times. But at least in news trading, you know this. But what does that mean. It means:

a) an appreciation of risk: that is, not risk, is a tiny set of possibilities. But it is entirely on this that one relies. It is like relying on a ladder, where one step is good, and not being sure where that step is. So the belief in intuition is being able to know where it is, and gingerly stepping on the other steps. And assuming still that this will be safe.

The risk is all those other things. So it points to issues with trading again and again on patterns in general, actually the set of possibilities is much wider than that set of trades. So in news reactions, is forex in the raw. And in any opportunity, is what opportunity in forex is. What it is, is a mixture of various factors. For example, luck in the draw (not even about getting the analysis right and the pair conforming but entering at the right time in the right way).

It is finding a set of possibly inputs from a large set of possible inputs. Now this is not saying that one chooses an outcome from a set of possible outcomes, it is rather that one chooses that outcome, then chooses from a set of variations on that outcome. To prune this, to make it feasible, one tries and enter on the fly and pick your set from there.

That is, one is not embracing risk, one is trying to deal with it, by letting the market prune it for one. The assumption that an early move in the short still time points to a direction is not sufficient, though, as one is assuming that the move is going to be contrary to this, but one does not know for how long and how many oscillatory moves there will be.

A less positive kind of environment is one where there is just a slightly shorter time in between oscillations, and I have noted this in the year before in USD/JPY (it becomes like a market at the top of a trend). Better is a classic extended time, respecting levels, thus allowing you to exit. By extended I mean a matter of minutes or less. But what engenders this.

It tends to be, from what I have seen, when one gets the news in jobs reasonably correct, contrary to the expectation. But obviously the risk that is trading off for the niceness of the trade, is most considerable. The market gives you potentially relative perfection, at the cost of going well out on a limb. Such moves may stall, and the question then arises to continue in, for a further rise, or exit here.

If there is one possible regularity in news trading, it is the stall after a strong move, possibly at a support/resistance level but the question becomes does it continue, stay flat or reverse (always a question to ask in forex). Or the question becomes: don't ask that question and see it as an end point to the trade, no matter what.

The question I ask is what turns this sharp reaction into a surge. Because the stall at the first resistance visible on the 1 min chart, can look similar. And note that that stall can turn into a reverse. In terms of the surge it may be something to do with the capacity to push through support/resistance and the bank of valuation possibility consistent with the direction taken: that is how much potential to move exists.

Partly this is also the extent to which the news is contrary to expectations. Bear in mind, that expectations tend to place the pair prior to news and the valuation potential is related to this and to how much the valuation is consistent with expectation.

Note as well that a strong FOMC reaction may be followed by a weak jobs report reaction. That is, one gets apparently complex results, but what might one expect within a rush of money flow. Yet there does seem to be some kind of structuring. It is like the huge money flow highlights, rather than washes away.

Blog Posted by Broker to Trading at 8:04 PM

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.

Blog Posted by Broker to Trading at 8:08 PM