21 July 2010

Risk in Forex

So is forex like gambling. This question is really, is forex gambling.
First off, I do not like gambling, it is just how I feel, and I find forex fascinating. I do not like gambling because it is pretty much mapped out, it is usually a two or multi-player strategy game, easily modeled by AI software (which I did work on).

However forex to me is about an insight, a hardwire, like something from Neuromancer, into the financial market which is the most complex creation of human beings ever. It even looks cool, those red and green candles, in those patterns which signify the movement of vast quantities of money.

One can discern engineering constructs within it, like the conduits I have elaborated which seem to have been set up to control money flow after the collapse of the support the housing market was giving credit, a huge source of money flow itself. The collapse of this actually collapsed asset values and an emergency rescue package was set up to create in effect this conduit. So no glamorous women, no James Bond, but something amazing and center stage in the world.

Now investing is not gambling at all, you do take risks, but there are risks on anything involving a transaction. There is a long term risk, in that the market may change and may not work in the ways of equity amplification I elaborated (the computational structure expressed in the fat tails and high peaks of the Dow).

There is the fact the market reacts to removals of supporting structures in the economy by collapsing asset values, or to attempts to present future valuations as present valuations (the tech bubble).

However you generally have advance warning of this kind of event by looking at long term RSI for example, it will show you the money flow which is going to level asset values. In a way you do not have to worry about why the money flows, but really you do as it gives you information about what you are seeing on RSI. One can invest to grow money, but one should trade for other reasons than to generate cash from leverage at high speed.

If you do make cash from trading put it to productive uses. But the probability is you will lose this money. Those long term structures which cushion you in equities do not seem to exist in forex, which makes it very hard to hold on to anything. One reason I have been looking at long term charts is to see if these cushions appear there.

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