24 October 2017

Reading The Forex Market

Multiple time frame analysis can indicate potential constraints on any conjecture, about directionality for example. But the time frame being traded on, can indicate what is possible within these constraints. But it is more than this. Because trading is dynamic, that is the future of possible outcomes is continually being entered from the present 'collapsing' them to one outcome, the trading time frame can indicate the extent to which constraints can be overcome, or not overcome. So there is a level of static analysis, from multiple time frame analysis and a level of dynamic analysis from the current traded time frame.

These static and dynamic parts are fluid in the sense that the static analysis may be changed by the dynamic analysis. That is, moves out of the constraint container, may change the static analysis. The constraint container is not merely a static sense of constraints (based around value levels for example) it is also the potential for a move to continue. This can be indicated by what is actually happening on the ground, as it were. However the static analysis can be very helpful, as it adds a vector of realism to what is happening on the ground. That is, 'exciting' moves may simply be moves within a container. Again the 'container' need not be some exact series of levels, rather it is a set of possible moves, just as the outcome need not be some simple direction, but may be composed of retracements.

This analysis is aimed to reflect the complexity of Forex movement, to any extent this is possible. What may change structure in the Forex market is a wide range of inputs. This includes possible technical outcomes, to the extent that they have their own causality, rather than simply being made to happen, by expectations for them (that is, technical analysis reflects some kind of meta set of static constraints, gleaned from the market over time). If technical effects are more like an induced effect, then this can be seen like a nudge on the market, which may or may not find momentum to continue. News inputs, which are more than the big announcements, in that they reflect the ebb and flow of the market to streams of inputs.

News events operate within some kind of constraint as well, reflected in the way news events can respect technical levels after breaking through other ones, a signature of big news announcement reactions. This may suggest that news events do not really change structure per se, perhaps because they happen so quickly. Rather they simply place what is there into a new value range. This suggests why analysis for news trading must be performed on the fly, as what happens within the container of time, in this case, is the outcome. The tendency for even large moves to drift back to where they started, points to this sense of a news event being a more an event of time, rather than tracing out paths in the market and potentially changing them.

So a distinction exists between time and movement in Forex. Mostly, time does not seem to be a factor per se, rather constraints and outcomes are what matter. Thus the sense when trading of events taking ages to happen - the market does not care about the time taken. However traders care about time, as they operate on their own internal and external clocks. So the attraction of news trading can be seen, as here time is a factor, everything the trader may want or not want can happen within a short space of time. That is the market responds to the events, making it like a causal world the trader is used to.

Of course the problem is that the idea of outcomes still exists, and may reflect static constraints even here. So the market may not respond as expected and may react to being forced to respond, by oscillating (in fact this is a common outcome to news trades). This may suggest that there is room for structural analysis in news trading, that it is not simply a directional speculation. But then again it isn't, as the range of possible outcomes within the short time frame shows. The complexity of the market is still there. So the time factor is still a structural factor.

Thus even in fast moving markets, the static constraints are there. An effective possible exception to this are moves which take place in market turns, on longer time frames. These may occur after an extended move outside of any realistic set of constraints. That is they should be happening but don't for an unexpected length of time. These kinds of moves may take place in volatile conditions (which are echoed at shorter time frames). Volatility is by its nature something which exists to some extent outside of static and dynamic analysis. But here a functional role for it can be seen within static and dynamic analysis, that is it may help to rewrite the market into a new phase, where static and dynamic constraints can be seen again.