That is, if one looks at markets and sees random processes, is forex more likely to be described thus. The reason I put it like this, is that it is not conclusive whether markets are random processes.
Why does investing in the school of Graham seem to work. One is choosing companies that are of a high quality, but one is choosing companies not in the path of money flow.
It indicates that money flow is not necessary for equity to grow. In fact once these companies come into the path of money flow, they are not regarded as worth investing in, in this way. That is, they lose directionality of the kind that is condusive to smaller sums aggregated and compounded to large sums.
That is, the huge sums invested in day or position equity trading in big companies which will move in small ways, are approximated in the smaller aggregations over time of compounding companies. That latter is what forex trading is, though, except one has to simulate the compounding.
Are these companies in the path of money flow more day tradable, well yes. That is, they will move in a days session. But they will move in arguably essentially random ways. It is not that money flow has no targeting, it does it is targeted by analysts. But one can no more predict this than one can predict the movement of a currency pair.
But...is it possible that growth processes, those processes that lift companies to this state, make them more tradable. Only if these processes still linger. In fact they may be the source of the persistence that those who see market processes as biased random walks, see. But they are not causal on the valuation of the stock any more.
However at every level of detail is does seem that forex retains its precision (and to an extent its risk at all time frames). That is, the fact that one always approaches forex as if one is day trading (in fact to the extent that one uses indicators developed from equity day trading) may reflect an advantage, not an unfortunate necessity.
All investing is trading, it is just there is a directionality in equities, when the market grows, that takes away the necessity to try and find precision at short time frames. But this exposes one to great risk, if that directionality disappears. Then the equity market becomes a trading market and one needs to know how to exit.
A lack of a timely exit can take away everything one gained, especially given the tendency to buy near a market top, that is to buy just before the directionality turns off and the market revalues down to an unsupported valuation. But if forex valuations are inherently not supported valuations, then maybe they are more accurate.
More accurate valuations gives one a chance of valuing. Clearly one values equities on a future projection, that is the accuracy is that the pricing will rise sufficiently to make it worth your while. But what one is really valuing is a process that will rise the share to a tendency noted in the statements for growth.
But one does not in practice value this process, one assumes it will work through retracements (which can be viewed as a collapse to trading valuations). This is why the tech bust and the crash were so serious. The tech bust took tech and internet related stocks offline from this process en mass.
The crisis took everything offline, to varying extents. These extents seems to cohere with the underlying strengths of the company balance sheets and it is interesting to note they seemed to fall into sets, suggesting that the market itself may compute on sets, in terms of the way the directionality process functions (again suggesting the coarse grained nature of it). However in forward sets (those at the front of resistance to the crisis) one can see that this process seems to be online again.
That is, the move to the targeting by money flow, changes the causality in their valuations. If the equity market were based solely on the dictates of Graham, it would not be random. And forex would probably consist of elegant clear growth in currency pairs, that would cancel out to ranges. That is forex would be less tradable.
Asymmetry is a key part of forex trading, but is it a key part of trading. Not at all, forex trading is based on equity symmetry, that is it does not tend to take into account the fact forex and equity are different (34 EMA being one of a number of exceptions). The question remains is forex day trading and equity day trading different. It is my belief that it is.
I would characterize this difference as the fact that patterns are clearer in forex, but deceptive as they are less tradable. The persistence lingering in equities gives patterns a less discrete and less clear form. Clarity is not such an issue in trading, being less discrete is, because then one can predict, as much as this is ever possible, based on persistence.
But I believe that the underlying processes in forex are more tradable than the underlying processes in equities. I think this is because forex is the process maker. This belief is based on observations from trading forex using equity day trading time frames to reference what I was doing.
What I mean by this is at short time frames, equity day trading is essentially random, if held together in some sense from a persistence from longer term processes which grow equity.
But at short term time frames, forex trading is not, it is generating precise valuation processes that can be traded, but one should possibly ignore signal types from the equity market, or at least adapt them.
That is, the cause to follow lies in forex, the effect to try and follow lies in equities. But the process itself made by the cause is the one which is most reliable. To process trade effectively one must invest, if the processes for this function.
© 2011 Guy Barry - All Rights Reserved
