01 January 2012

Simulation, Prediction and Forex and Stocks

This blog has touched on simulation a number of times. Why. Well, it seems that simulation is what the market structurally performs. When it operates as people want, when it functions, it simulates valuations. That is, it simulates a future valuation.

It does not predict or find a future valuation, and indeed all investors take part in this game. That is the market does not produce statements, which is what analyzing a chart effectively is a search for, that contain predictive information.

It may produce statements about the present function of the market, which by pattern matching on may simulate predictive statements. But since the market is not producing these statements, while valid at a given point, they may be completely invalidated at any time.

But it is real in this sense, that those future valuations seem to tie in with something real in the economy, the growth of the underlying assets, that is the potential for growth evidences in the analysis of their statements. But is that not pattern matching. An interesting question.

The point is it may not be, that is the power of financial analysis, and why it is a great search to find something like this in forex. At least we can see what it might be. That is, the creation of structure that can be valued. The value is a function of the interconnection and strength of the structure and as well the capacity of the market to functionalize this into its valuations.

So we can expect well ordered pairs to grow ? Perhaps. But the ordering comes from the economy these pairs reflect. And there is an issue with the quality of the structure, given what happened in the crisis. That could be seen as an issue with interconnection, that is some connections were simulated.

The liquidity of the market itself can be seen as providing a basis for this simulation. Less liquid markets do not perform as investors want, more liquid ones do. But we could expect that this would not improve the quality of the interconnections.

But it is not precise, it does not target individual companies, it targets aggregations of valuations. Could we see an evolution of the market that finds more accurate and precise targeted valuations. That is an issue with re-structuring the economy which brings us to forex pair valuations as well.

The reason we might want such an evolution is because the undoing of the market is the issue that these simulations are unstable, or create unstable structure.

They are effective in creating enormous asset surges. But they fall apart. So perhaps reinforcing the simulations may result in more stable simulations ? It may be we can never get away from simulation, as we are looking for predictive statements.

That is we find something specific in those bull-bear cycles, that we can extract from these cycles and work with. We can ask whether this is inherently unstable, but it may not be. We can say that the surge to high valuations is, it has been described many ways thus and we presently live in the aftermath of one such.

It is especially unstable because it is pure predictive statements created by surges of investor interest. They are not native to the market.

So we look for money flow + simulation = creation of structure. That is, we get a rising asset valuations simulated on the market, but more tied in with the underlying asset growth. That is we increase the stability of the structure and lengthen the temporal reach of this structure. The question we have touched on is whether that will curtail those huge highs.

The first thing is, that for many these are not highs, they get in, as everybody can and does, too late. But they may have an importance for the future growth of the economy and market, after the retracements, at least in equities, this may not be the case in forex.

Stabilizing those highs may be impossible, because they are forced predictive statements. But if we could find that which enables future growth, we could stabilize that. That brings us back to information passage.

Have a very happy new year, everyone.