11 June 2011

Process Pattern Trading

One particular forex process pattern that appears with something approaching semi-constrainable predictability, is a market turn. That is, its predictability is firstly that market turns will take place.

Its predictability is next that this is highly tradable, that is that traders will force directionality. But its predictability is next that it has implicit directionality (perhaps what the 34 EMA points to).

Its predictability is next that growth processes will play a role in this. Its predictability is next that market turns are characterized by what is termed volatility. This is a word used as a blanket term to explain non-regularities in forex and other markets.

However, as a precursor to a market turn, volatility is a regularity, and a tradable one. It is in particular a moment not to trade, for a trade or to trade as a counter (future) trend trade.

But because it is not a regularity created from market maker action or traders forcing a trend, it may perhaps come from market processes. Because growth is happening, does not mean it must have a directionality.

Growth is a process not a direction, one can perhaps surmise that any directional is accidental. But in a set of predictable constraints its directionality becomes less accidental.

Share valuations increasing is a directionality, and it is a feature of a process or set of processes in the equity market. The underlying growth is directional, as it leads to increases of a) the companies present asset valuations and hence its equity and more importantly it leads to b) increases in projected value, that feeds back to present valuations, a happy set of circumstances for a share price.

This leads to bursts of growth in a direction up. This can end when projection targets are missed, invalidating the confidence in the projection and removing the future feedback from the share price, that is a sharp decline as share price is a dynamic value, adjustable in real time by market makers and huge flows of money, with some technical constraint on this process of revaluation.

In forex one tries to use indicators to find directionality. One can perhaps view indicators as properly a set of constraints, that should reflect processes. From this one can constrain directionality into more predictability. The issue is not to do this, but to have coherent use of relevant indicators, over time.

The thing about processes is that they have dependability over time, at least in equities. Could one expect this to be the case in forex. Yes, unless growth disappears from equities and the economy, which does not appear to be happening.

What is the relation between function and process. Function always has label issues, process is more concerned with how how the market functions, that it is inherently intuitive, if market intuition exists in traders (one can perhaps safely assume it does).

But, for trading one needs to move away from intuition, if one wants to remove the many problems one faces as a human trader, who does not want to rely on programs or rule sets. One still wants intuition but one want a structure for it.

Intuition does seem to come in bursts, if one can speculate that it is a particularly high level brain functionality. In effect one needs to have something  to catch you in the space between, because the market does not. But that is the problem with trading, it assumes one can read the market.

The benefit of a market turn is that one can support ones intuition with a move like this in the best way, with the market itself. The downside is getting a precise enough signal to use intuition on, the danger thus is getting stopped out on a correct guided intuitive trade.

That is, I believe that intuition plays out on very fine grained processes, it seems particularly effective in forex. So what one may need is an adaptive coarse grained supportive framework for one.

Intuition works best this way, it is why intuitive choices work when you have prepared well. It is just that preparation based on past events has problem in forex, so this is a way to be prepared for real time decisions.

© 2011 Guy Barry - All Rights Reserved.