01 October 2011

Asymmetrical and Symmetrical Trading Views in Forex and Stocks

The illusion of precision...this relates to the sense that the safer you make your trades, profit rapidly reaches zero. Thus are profitable trades imprecise. The assumption of gambling in forex, that one looks for patterns and trades on them, scratching non performing patterns is imprecise on one level.

It is precise in the sense that it follows a set of rules precisely, grounded in past performance of such rules. One can be criticized in this case for not following these rules appropriately, that is the imprecision of such trading.

The imprecision is that one might say that one does not not need to scratch trades, that is this method is imprecise with reference to the market. Rule sets assume markets which have a regularity, but it seems that the forex market may not have these kinds of regularities.

Such regularities as it does have are brief and rapidly dissolved by the market. Indeed they can become traps quickly, for those who makes trades on the assumption of regularities, but is that not precisely what happens with rule based pattern trading.

That is to what extent does rule based pattern trading conform to regularity hunting. Rule based pattern trading makes assumptions about the persistence of regularities on a coarse grained scale. Regularity trading makes assumptions about tradability of regularities on a fine grained scale.

It may be that in equities the two are the same, but in forex this may not be the case. In equities it may be that there is a scale up from fine to coarse grained, but one can assume a reduction of precision as one scales up.

But in forex there may be no scale up, the precision is only in the fine grained trades. This means the risk is related to the consistency of structural regularity, visible in theory to the trader. That is trading on micro structure may be less risky than assuming macro structure in forex.

But of course one must trade them algorithmically, and accept large losses as one does this. One cannot adapt these micro-rules to the market at the speed the market operates at, the problem all human traders face. But the answer in forex is perhaps not to then use equity based coarse rule scale up methods.

This simply makes the market a random system for you, which it may not be, as the rules you use are not derived from the market, they do not compile forex functionality. But of course the advantage of forex derived indicators is that they might.

But it may be the case that they will only describe as there is not that persistence of function in forex that there may be in equities. Is there an advantage in description. It will not give predictability, thus it may only act as a filter of when not to trade, which is something past data can tell you.

Why can past data tell you when not to trade and not when to trade. When to trade is based on future events. When not to trade based on past data assumes persistence of function and regularities on a coarse grained scale. But do these not exist in forex. Indeed. But the fundamental function of forex may not be based on persistence, it maybe be based on strong computational processes.

This is what forex based regularities may describe and tell you that the market is at such a point in a function that in the past has produced a certain effect. The problem is that when translated to trading views, this may be essentially random. This leaves open the possibility of representations which deepen trading views, an aim of this site.

Thus the exploration of this site to map forex trading views to market process. However the antagonism from market makers may break any such symmetry.

If one kept out such antagonism, then one might expect that one would retain symmetry, but then one would not have an optimizing market, one would have a market geared for growth (which symmetry may be a precondition), but without any, in forex.

That is:

Asymmetry = optimizing = non persistence = interconnected micro regularities.

Symmetry = non optimal (growth in value) = crashes and re-optimizing via forex, creating micro tradable structures.

Thus one might suggest that one looks for evidence of symmetry in equities, for signs of a possible new cycle of growth. Now the state of the market to which it goes from bear to bull may not be one that has any visibility, hence the random nature of the new rise. However might one expect ranging, but ranging with a tradable order, not random peaks and bottoms.

Market turns in forex are deceptive because they look at lot like continuations of the trend. It is a similar question, as to how one tells whether a pair will spike down a '00' or bounce or turn up, assuming some fractal structure in forex. But if this structure has origins elsewhere this may itself be deceptive, unless there is a tradable ordering in its appearance in forex.

It may be impossible to know, hence the random nature again of market turns, that is on a long term scales the transition from a bear to bull market.

But what I am suggesting is searching for new order within pricing changes, that is, is there anything in the movements down for example to suggest a change in the structure of pricing movements.

This is extremely hard to do real time in forex, that is one has to accept scratched trades, but in a major market turn this may not be so intractable, one might expect. But then again, the ranges may make trading on this in equities equivalent to forex trading on '00', in terms of extreme market risk.

But in this case investors have an advantage as they may not wish to trade such a market, but most certainly would wish to trade a market turn. The problem with trading a downturn, is that one may get on this at the point of an upturn or consolidation.

But in the case of a '00' one has one things in one's favor, the action of market makers on pricing at those levels, even on the most fearsome downturns, but in unpredictable ways, as the most fearsome downturns may be a prelude to consolidation or a market turn.

It is not a predictability, but it gives one a trading view. Thus one might want to consider whether there is something like this to give a perspective on directionality.

Whether there is ordering within or it is just a random process with loosely connected islands of regularities, the way the market can change is part of its unpredictability and at least its appearance of randomness.

So can we look for greater coherence in connections of regularities, as a signal of increasing order in the market ? The question is how this would translate into pricing, but again it is a basis for saying a market has become more tradable. This is the movements from order to disorder that may cause asymmetries in the market, especially if the market has changed.

A market predicated on reduced debt or at least serious control of such recourse to the bond markets, and clever investment from government sources would perhaps be a changed market, but that may be something for the future, or is may take time for it to translate into a new bull market or even an ordered ranging market.

This does not mean such a market would evidence the huge rises from 1981 onwards, which had perhaps another predication. In my opinion these were arguably excellent and revolutionary ones, they caused massive asset re-valuations, some of which may be unsound but many were not to the extent that a new vibrancy to and resurrection of the US economy began, which still very much exists.

It may be the case the market has made them unrepeatable, and thus the time to toil with grounding the basis for the markets to rise, is upon us. But the market can bring sunshine, as is well known, when you least expect it. Whether it is only or usefully when you least expect it is a question targeted here.

© 2011 Guy Barry - All Rights Reserved.