This lack of structure in forex, creates the sense of a sea. The core of forex is money flow, it is native to it but it is structured, in a very fine grained way (this is I believe the source of the clarity of native forex indicators).
Those fine grained computations are optimizations, from a problem space with a very high branching factor. It is possible these solutions are taken into the equity market as a source of growth. A kind of re-adjustment of the long term calculations bringing equity up to its potential in a company statement.
If the market does not function this way, this belief is exposed as such. Even big speculators cannot push up forex and if a market does not function with such growth processes one might assume that such companies will not rise. That is the very definition of high risk.
These processes are supposed to be black box processes, it is not that investors take these companies to their potential exactly. Investors find them based on the fact that this kind of structure has performed like this in the past. Investing is a belief in market functionality. It perhaps is action contingent on the persistence effect of fractional Brownian motion.
But that attraction of forex, those high intensity structures that one want to trade on, is that apparently or actually a fractal mirror of long term investing structures in the Dow. That is, is there a structural rationale for investing in forex.
One way to approach this is to think exactly what it is one wants when desiring to make trades. I believe it is this desire to invest, to have a belief that one can sufficiently find directionality to make a return.
The reality is different, because the market is not attuned to having this happen. No matter what it could not, the short term market has inputs which are simply random, in terms of the market itself. That is decisions to sell dollars by a central bank.
One can look at a higher time frame to smooth these events out, but inputs can turn the market. But it may be that the market is at times less vulnerable to this and these times may be when growth structures are in it.
It may be that it is most vulnerable when these have decayed. A market with pure money flow, if it existed, would presumably be characterized by a lack of directionality.
That is, a market such as this would be internally random, any regularities would be accidental. There would still be external regularities, from large trading oriented orders but one might expect the market makers and antagonistic trading would dissolve them too quickly for others to trade them.
That is like a sea, structurally, with waves appearing at random which one probably cannot get into in time. But that is exactly how forex is in practice. But my belief is that fotrex is functionally like this. So what is missing that collapses the experience of trading to a random market.
There is evidence that forex is not a market with long term structures which as equities but not that it has no information structures of its own. The belief was that the Dow market essentially has no tradabale or investable structures, but that was not the experience in practice and academic evidence itself appeared to counter this assertion, albeit research from those involved in the market.
My sense is that the experience of forex itself suggests there are tradable structures in it. My feeling is that to unlock an investing environment in it is not an issue. That is because it is already there.
The question has already been tackled. Is it a question of technology. Is it a question of coarse grained structural changes, using indicators from the equity market. Is it a question of native indicators. Is it a question of sharing the process with other traders.
My feeling is the more one can know whether one can predict not market movements, but market functional changes, the more one answers the question. The advantage of forex is that this can be a way to make trades, in equities it tends to be more a way of telling you when to clear positions, which will we swept away. In this sense forex is potentially a more investable environment.
But those powerful growth processes in the Dow, when they start lifting those companies within it to great heights, are such a relatively straightforward way, that forex cannot replace equity investing. They are more properly perhaps meant to go together. They are part of the same functional event, finding optimized valuations for companies and economies over time.
My feeling is that this is an event with actually more information content in forex than the equity market short term, or the equity market when valuation functionality is impaired. The equity market is to an extent the result of this computation, the forex market is the process of it.
This suggests that the dynamic methods of forex trading are themselves approaches to investing itself. This is true of equity investing, in the sense that shares get sold given certain changes in the market or the shares themselves, on their path upwards.
The suggestion in this blog has been that perhaps forex could provide precision to this process itself, why well because that is precisely what it may be doing. That is the secret of trading, if you cannot force the market, to go with the structures within the markets.
Those structures exist in the equity market as a set of statements over market and economic conditions, despite money flow and external inputs, they work. It seems logical that the same would be true in forex, if forex is part of this process.
If creative moats are a feature of a new rise of the American economy, then perhaps a new kind of company growth is in store. Could one expect that forex would play more of a role in this then in past incarnations of the Dow's structure.
Can one assume the functionality of the Dow would stay the same, if it does not one would expect forex to change. The issue is exactly what Warren Buffett said that calculating value on these companies is very hard.
If investors cannot calculate value, an essential input on global optimization processes in financial markets then what will ? The market itself and the core programs of forex. If one can abstract investing itself, one is essentially seeing this in forex, if one can make forex investable. A good reason to try.
© 2011 Guy Barry - All Rights Reserved.
