Firstly, one needs to ask exactly what is one doing. This is always helpful in financial markets. Let's take the example of financial analysis in equities. If one analyzes a financial statement what is one doing. It depends on the analytics one uses. For example it is said that one should not stress too much ratio analysis.
The ultimate reason for this is that the market itself may not use such linear differentials to compute value into a company. One tries to find as complex enough a linearization to feed into a comparative sense of the state of other companies and one's sense of the market.
In a sense one is always doing ratio analysis but one is looking for what one is really looking for in ratio analysis, something for the market to hold onto that one can identify. It is just this is a complex structure, not a simple one.
The point is in equities one has a stable sense of what it is that is being caught onto. In forex one does not. But one seeks it in News Trading, because it seems like one has something stable, the market's reaction to a new event. But the problem is this is an illusion. The market has already computed into its valuation what the effect of this news is, in terms of its computational structure.
This is most true in forex, which is highly keyed into the huge numbers of transactions which make up economic activity. If one looked deeper and deeper at forex structure, one would probably not see fractal structures, one would probably see very fine grained parallel computations engaged in a search for value. These hyper responsive structures (unlike fractal structure which are sturdy and analyzable) move and shift and more than this they compute value real time. NFP is past news.
What this does perhaps give is a direction towards an understanding of the most mysterious of properties of News Trading, how the moments before release can give a very accurate structural representation of what may happen next. That may not actually be a dead zone ('All Quiet of the Western Front' as a new report most memorably described it).
It may be the market at its most stripped, its computational heart which must always exist, the parallel computations are taking place, without distortions of money flow, market makers and so on. It is a pure market. The market itself is acting as the market maker.
Here one gets the most true sense of what does the market say. It may be the bets of money flow on a vast a scale and all the individual traders about to be unleashed go with this powerful underlying computation, they are essentially agnostics as to direction, for once in this market. The computation rules. This suggests problems with analysis in forex, unless it is computational.
© 2011 Guy Barry - All Rights Reserved.
