10 January 2012

Mind Over Functional Matter in Forex Trading

This is a blog post about the experience of forex trading with respect to market functionality.

What are the disadvantages of chopping up charting patterns, that is trading on micro structure, or small pockets of directionality. If directionality is not part of the way that the market computes value, then losses are.

But is it possible to smooth this process, to fit it into some elements of global directionality. This is partly what the site aims to do.

Chopping is a way to day trade the forex market, albeit highly risky as a human. But other approaches look for more stable directionality.

It might be critically suggested that such approaches are like building a scaffold on quicksand. Not unexpected, because the micro foundations are like this. So we look for something sufficiently abstracted from the micro structure of forex.

Possible options are a) to look for directionality punched in from highly directional markets. But this seems only to work at extremes, for example lockstep cascading in a crisis. And it only seems to work at times that are not predictable.

This may be a consequence of information passage: that which allows passage is not connected with the temporality of the market per se. This may be a problem with all attempts to find something abstracted from micro structure, if we assume temporality is a function of this. It as well seems to be subject to intense processing of the targeted market, aka high speed intense chopping arbitrage by the market.

Another option b) is to look for memory structures or structures of reference in the long term view of the market. This is essentially another smoothing of the market, over time. Now is this illusory or real. Is it the consequence of the respect with which these pricing levels are taken by participants.

I suggest not entirely, simply because each pair evidences different ways of respecting these levels. That is the respect of these levels may be essentially random. But the same issues with abstraction from micro structure remain, even of there is some stable structure ordering this.

However that ordered behavior I have noted in supposed directionless markets suggest to me that while the respecting of levels my be random, the capacity to find such a level may be ordered. That is the market itself may smooth. Which casts an interesting and positive light on the search for longer term stable structures in the market. That is, those scaffolds, correctly built, may be very stable.

Essentially one looks for conditions such that a level may be respected, for reasons other than that the level will be respected. But that is trading. One is always looking for reasons that something may happen, but without a real conviction that this will happen (having that conviction is arguably investing). That is the gamble and the source of many of those feelings of fear and elation accompanying forex trading.

But at the same time one does not feel this is gambling, that is one does not feel that there is no connection between your present trading event and the market. However that may be how the market operates, the causality is not in coherence with tradable directionality, except at random times.

That is why automated strategies are so attractive in this market. So the aim as a human trader is to be able to trade anytime. That brings us back to scalping. That is defining scalping as mind over matter, matter being the randomness of trading moments.

However of course that is how computers trade, it about more than being tirelessly in the market 24/7. So the perfect human trader, is one who thinks like a machine, but with much better processing power and something else no AI has, intuition ?

As for the fear and greed, if you logically justify everything you do and see, even if it is: 'I have insufficient data to make a conclusion', then they are not that influential in your actions.

In fact they can contribute to your enjoyment, as long as you pay attention to the logic. But you can then make a separation from the feelings urging you to trade and the logic telling you what to do.

Another option c) is to look for experimental ways that the market may function to impose structure over time usefully related to micro structure, which is part of the aim of this site. That is not to impose mind over random matter, but to trade with the function of the market.