26 October 2010

Retail Trading and Indicators

The statement that a currency pair is undervalued means something different whether one is talking about a technical reference or a fundamental one. A technical undervaluation means that there is something for traders, systems and programs to try and move the currency (assuming those signals are not reflecting something intrinsic to the way the market is computing value).

Technical indicators will tend to show you spaces in between surges of money flow which as a retail trader you cannot be a part of. Attempts to do so, are a basis of the loss of money which is the reality for retail traders.

A money flow indicator will show you what somebody is doing and that somebody is not the retail trader. What I mean by this, is that there is a huge difference between retail and other traders simply from their capitalization and their capacity to risk. Risk in forex is the ability to push the market.

Risk for a retail trader is the chance of getting in on somebody else’s move. By the time the indicator shows this move then it is usually too late.

A fundamental valuation means that there are other forces which will move that currency. But the point is those forces are forces of optimization, setting valuation ranges. And it true the Fed and ECB found a way to do this this in such a way as to bring a kind of economic growth, but one which engendered asset inflation. There is an alternative it is one based on company growth. As this blog has said, this does not result in huge re-valuations.

The desire to escape from business cycles results in something far more profoundly damaging to the US and world economy. Real growth whether in market or is nature is a movement which results in steps backwards, as new direction are searched for within the constraints of the design program. But money flow is something which fades as an effective approach, and this gets the big money as much as anybody else.

If the currency pair is not optimizable then it may not move, valued or undervalued. A fundamental valuation is more effective, but it takes time to work out. Another reason for the intense difficulty in market predictability.

Fundamental valuations are more solid, probably because they key into that chaos structure, which has structural predictability as it comes from a hidden determinism. Optimizations are not really predictable, they change dynamically over time. The very fact the Fed can change valuations attests to this, they are powerful tools to direct valuations to new ranges.

But the dollar is a tool of the attempt to shore up the way the economy was before it collapsed in 2008. Now that it seems to me is against what the US economy maybe will and certainly should do. The promise of Obama is to restore that engine of fractal growth, which will support dollar valuations, literally in the market, in accordance with the model this blog is proposing.

This kind of support does not need rate differentials, carefully scheduled news events and so on (with the result of a huge revaluation to the true state of the economy in 08). It is a computational supportive infusion into the forex mix via equities. For this to happen just needs that economy to restart, assuming the equity market still functions as as source of fractal growth. Then it's jobs, it's growth, it's the glittering future, it's that promise of hope fulfilled.

It might as well be a forex market more like an investing market, and tradable by the people. Technically it would be a situation where the optimization is more internal to the market itself and thus something traders can key into, in the way they can key into equity valuations, assuming a working market.

All this means is that predictability is a function of the extent to which causality is from structures, not from money flow phenomenon, i.e. purposeful attempts to move the market. In an antagonistic market those forces are not friendly ones to you.

Those moves you are trying to get onto with indicators are exactly moves to take that money from you, see why it is so easy to lose ? The COT reports do not report necessarily that retail traders do not know what they are doing, they report that they are in a different part of the market, they are a target for the big money.

Those moves from growth structures are ones which are friendly to you, but they come and go in forex. To predict equity generated moves in forex requires the ability to predict day trade equity moves and if you had that ability, well, you probably would be on your island. Day trade equity moves are a function of money flow as well and have the same predictability issues. The trend in forex and similar markets is not really your friend, structure is.

© 2010 Guy Barry - All Rights Reserved.