02 November 2019

Regularity vs Structure in Forex Trading Patterns

The core idea of a trading pattern is that it has a form into which can be contained a distance which provides a rationale for making a trade into it. The idea is to get into this structure in such as way that there is sufficient distance remaining to make the trade worthwhile by whatever metric the trader is using.

The problem is that the point to get in can look a lot like (and can be) other potential structures which may not be viable for the direction chosen for the trade. One approach is to extract from this structure a simplified pattern. This pattern can be seen as the regularity which determines the structure. What this can tend to result in, is that trades become short term, as the regularity while clear and potentially repeatable, may not contain sufficient distance to make a one off trade worthwhile.

So what is the difference between this regularity and the structure. The difference is that the structure combines a number of potential elements, which the regularity effectively creates piece by piece. To give an example, a trend can be seen as composed of a number of parts, each of which can go different ways, but overall if it happens as a pattern, can provide a distance composed of a directionally stable regularity, though composed of retracements.

Indeed retracements can be seen as part of the way a structure is composed in Forex. But the idea of a regularity seeks to smooth out this retracement, as a retracement is a way in which the trend can in fact become something else and indeed a reversal or another pattern altogether.

So regularities can be then looked for at market events. For example, at market close. The regularity in general seeks to find a directional move which will not be composed of destabilising retracements (but which when they work out can give such a strong directional move in the end to a trend). This particular regularity is expected to emerge from a liquidity event which simplifies money flow for a time, allowing or forcing the market to move. But by its nature this can be expected to short term.

However a regularity wrapping around a market event may form a basis for a trend, indeed it may provide an impetus for a trend, and this is perhaps the core expectation in the idea of trading on regularities. But is there any reason to expect this to be the case. There might be, but it may be tied into wider market events.