16 September 2010

Range versus Trend in Forex

One thing I used to follow in forex was the length of a basing pattern before a move. Now, this was based on a range environment, but of course at some level of detail, there is always a range.

Can we ask if there is something qualitatively different from a movement that is a trend from a range at another level of detail. Yes, we can. This is from a lot of observation and trading of mine at 1 min to explore the behavior of the market at numerical levels of significance ('00', .20, .15). There are tighter levels of detail than 1 min (e.g. tick) but it is probably good enough.

This blog believes the forex market probably optimizes qualitatively essentially. This is because the computer programs do not write the programs. Now programs using techniques from advanced maths, models from AI, physics and so on may bypass this but they probably do not, these models themselves are not written by computers.

They are derived from formal systems, but the creation of the models themselves is at some level of detail a qualitative exercise of a creative mind. That is the problem with formal systems, they cannot self derive proofs which have a stable reference. That is why the fact a lot of models cannot be derived from experimental evidence is a huge problem in physics. Not to mention AI, where experiments have similar problems.

In all events 1 min is about as fast as the brain can deal with.
In a range the market is tied to such things as the length of a basing pattern. The chaos based Polarized Fractal Efficiency seemed good at referencing the transition to a trend (there tends to be input from an equity market in these cases, either Asia or NY), in conjunction with Ehler Fisher transform which seems to reference order flow.

In a trending environment, specifically in the beginning of one, order flow starts to predominate, in such things as the targeting on '00' and the way it will break the level, as this blog discussed. In is directional. It is possible to see signs of this as a kind of pressure build up in candles, but order flow is structuring it.

These all seem like elements of qualitative reasoning (one of my research areas), translated to forex, which suggests the transition to a trend may not be machine structured (though one would expect this from the observations above).

That is why the forex market can be precise but inexact (from yesterday's post), qualitative precision is like this. It is why there is room perhaps for the formation of structure which look random, but which one can feel intuitively what it is. It also indicates theoretical problems with systems.

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