06 September 2010

Information Symmetry in Forex Charts

This is a very conjectural post for Labor Day. Instead of saying that forex is fractal, let us say that time frames are symmetrical or asymmetrical in terms of information. For a trader that is the point of interest, can one scale up or down one's information tests, such as indicators, pattern analysis and so on. That is, a 1 month chart can be analyzed in the same way one analyzes a 1 month chart.

More specifically, can one roll through chart time frames, like 1 min, 5 min, 30 min 4 hr a not unusual set. One can, but is there an inherent information degradation occurring by doing this or is it like focusing and context generation. One's feeling from doing this, is that there is, but why.

This blog has commented on differences between 1 month and 1 min and similarities. This comes partly from observation of an interesting indicator called the Polarized Fractal Efficiency and RSI as well as order flow. The reason I find PFE interesting is it seems to hook into something (the hook is part of its action, but I mean that sense of grabbing what is actually happening computationally in the market).

The RSI as I said does seem to reflect something real as well, but it is more like structure itself, like Raghee Horner's 'Dave Wave'. One could conjecture the 'Dave Wave' is itself a function of market structure while the RSI is more a simplification of market functionality.

A very tentative observation is that PFE seems to symmetrically link 1 min and 1 month. Given it models chaos and fractality might one expect that 1 min and 1 month are more resonant with this ? Remember this blog believes the chaos in forex comes from the equity market, it plunges determinism into the forex market.

Thus very tentatively one might see some support for the earlier observation this blog has made about symmetry between 1 min and 1 month, in certain circumstances. Would one expect a working equity market to bring increased symmetry between time frames ?

Without the input of the equity market one might expect less symmetry. By this I mean when the equity market is guided by money flow, like in the crisis or now to an extent, as this blog has been elaborating. One might expect money flow to simplify and thus remove symmetry, because it removes information.

A usual expression of this is volatility. Thus one would see scale up and down. But the equity market does still work in traditional terms as this blog has explored. But it is causing perhaps symmetry near the levels where order flow predominates and where long term strategies are formed.

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