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Part 3. TREND AND FLAT
Not many copies have been broken about the terms "Trend" and "Flat", let's break another one J
The fact is that neither Trend nor Flat exists. These terms were invented to give a descriptive character to price movements. There are no clear definitions of these concepts. In each case, it is necessary to introduce time and magnitude restrictions. These limitations, as well as the topic itself, are described in more detail in the branch "Trend or flat, which prevails?
However, for practical application we will only need conclusions. On average, the price tends to maintain the equilibrium at this level as well, i.e. to keep the ratio between the Trend and the Flat movement 50/50. That is, if the price fails to maintain the symmetry, it will stay in the equilibrium state longer and vice versa at all levels. But it is impossible to predict the moments of transition from one state to the other due to the reason described in Part 1.
Actually it is the first regularity:
Price is in a dynamic equilibrium and is constantly "trying" to return to it. In this case the ratio between trend and flat movement (in the given constraints) tends to be equal at all levels.
So, what should a trader do if the price, in fact, does NOT go anywhere? Look for the points of dynamic equilibrium? So the moments of transition are unpredictable! The only way out - to have a deposit tending to infinity (guess who has it?), then your profit will tends to infinity. Why do you need it, if you have an endless deposit? So, your goal must be not the profit, but some OTHER goal! We will not go into this question now. Those who want to broaden their horizons may watch the film "Zeitgeist". But a thought still haunts me. If there is a way to lose constantly, there must be its antipode - to find constantly. Some element(s) is obviously missing. Are there still dependencies in price movements?
Part 4. INTERDEPENDENCE .
As a rule, a trader begins his or her acquaintance to Forex this way - he or she pounces on some EP and begins to apply different instruments to it in order to find differences in readings that can be used to "calculate" the reversal points of the dynamic equilibrium. But as we have convincingly shown above it is a futile exercise. All the discrepancies will show you the necessary points with the 50/50 probability, ultimately leading to the loss of the deposit. And the point is that this tester can't see the forest for the trees. And the properties of the forest are not at all the same as the properties of the tree.
Here is the most interesting part, but first, a small digression.
Despite the outward resemblance between the Forex market and the stock market, there is a fundamental difference between them.
While equities have a certain value in money, Forex does not have a price as such. We are only dealing with RELATIONSHIPS! I.e. if shares of "Pupkin and Sons" go up in value, we say that they go up in value. It does not matter what currency we buy them for (if any). If the EUR/USD currency pair is increasing, then we cannot say with certainty, by looking at just one price chart, whether the dollar is becoming cheaper or the euro is becoming more expensive, or whether both currencies are increasing. And how can you tell? Correct, by looking at other charts with the same currencies.
By "happy coincidence" (so far) there is not only one such pair in the market, and their totality defines a market property. That property is EQUITY. And while all (!) stocks may fall in price at one moment of time (which we see happening), the charts of currencies cannot all be directed downwards. That is, currencies cannot all go against all! This is the "Achilles' heel" of the Forex market and its fundamental difference from the stock market. How to catch it by the heel?
Part 5. THE MARKET IN EQUILIBRIUM
Remember we talked about a dynamic equilibrium that every currency pair tends to? If we look at the market as a set of ETs seeking a dynamic equilibrium, then we can assume that the entire market is seeking a dynamic equilibrium and more than that - it HAS to be in this equilibrium! Because we said, not everything can go against everything. If all (most) GPs containing e.g. EUR go up against EUR, we can say that EUR goes up. If all of the GPs containing GBP are growing (i.e. the pound is growing too), the only GP that "will hardly change", i.e. neither growing nor falling, will be EUR/GBP.
It is safe to say: the constant presence of the market in a dynamic equilibrium is a quality of the market! This is a property that can be used in trading. How to do it?
Part 6. INDEXES
Let us bring all (even the major) EPs into the equilibrium, i.e. let us give them all a constant. This way we can separate the currencies themselves from their constituent GPs and compare their change relative to other currencies. Figure 3.
Figure 3
The graph shows eight currencies, of which 28 combinations (GPs) can be made.
In fact, you have the whole (main) market in front of you on one graph. The values themselves do not make any physical sense, although they may have some meaning, that is why they are called indices.
I would like to point out right away that the indices on this chart show the RELATIONSHIPS between currencies, and in this example show the change as a percentage of a given point. This means that if we look at changes of any currency pair, it will correspond to its percentage change from its value corresponding to the reference point.
Hence follows one more important nuance rarely noticed by someone. The change in percents does not correspond to the change in pips, so in practical multicurrency trading this should be taken into account (depending on your strategy and risks).
I have not been able to find a solution for pips (which would be more convenient for visual estimation). Perhaps it does not lie in a flat coordinate system, but in a volumetric one. If anyone have any idea how to find the location of the points at a known distance between them, then let me know, I would be grateful.
The solution with points on the plane is possible for some given currency, which may also be a useful tool for someone. Fig. 4. shows both variants with a difference in points and percentage.
Fig.4
I want to emphasize that this view in no way indicates the coming reversals, trends and flat. And it cannot be used as a forecast. My opinion - you cannot predict the market (see part 1), but you can use the interaction of its components. But it's an almost impossible task to do it alone. This is where automated trading comes in handy.
* From the figure you can see that AUD/JPY has undergone the largest change, which is true, because the change was 13%. However, in pips this value is 744 pips. GBP/AUD, for example, has changed by 4.6% (much less than AUD/JPY), but in pips is higher at 930 pips.
Part 7. CONCLUSIONS
- The market is not predictable, because it is a rivalry between market participants. Rate changes have nothing to do with economics and economic data (and the news accordingly).
- The organizer, in addition to endless profits (which he already has) has other goals.
- All currency pairs in the market tend to a dynamic equilibrium. It is a property of EP. The equilibrium can be disrupted due to "disagreement" with equilibrium of the participants**, i.e. their joint actions.
- The market is in dynamic equilibrium. It is a property of the market.
You can use these properties in trading by forming a portfolio of necessary IPs and dynamically changing it depending on the market situation and your own strategy . It must be remembered that a change in currency ratios does not correspond to a change in pips.
** Including because the money is not backed by anything, and the amount of "blown" money exceeds the backed money by orders of magnitude.
** Sometimes the organiser can act as a participant.
Part 8. THANK YOU
I want to thank everyone who was directly or indirectly involved in this material and not only.
In the first place, I want to thank Komposter for selfless work in the "Trend or Flat, which dominates?" thread, and for the realization of numerous modifications of my "ideas", as well as Candid and other participants.
I would like to thank Surgeon for his unselfish work on the realization of the dynamic market equilibrium in the form of concrete indicators. It should be mentioned, that I have found ready solution in Igor (Xrourg), which has only been modified a little.
And also: The Xpert, Mathemat, DonSergon and others (don't worry if I didn't mention them).
Also I want to thank Sergey Kovalev (SK). Although we did not work together, I recommend to read posts of this wise man.
I wish everyone to become free from slavery to money.
With my best wishes.
The rate changes have nothing to do with any economy or economic data (and the news accordingly).*
What economic indicators are we basing our conclusions on?
the news is the least relevant for fundamental analysis
only news background is summed up in a vector
from a technical point of view news are not suitable for analysis because the same type of news (for example interest rate once a month) has infra low frequency of sampling
Xadviser, good thoughts. From the category of those that bear the concentration of the thoughts of several intelligent people and once again make us think about the air we work with.
расположение точек при известном расстоянии между ними
To begin with, you have to have a point of reference, relative to anything.
Yes! The biggest money can be made in a crisis. Putin even wagged his finger at the banks, like the government will not allow the banks to make super profits. Oh, yeah! But he did not specify the criterion...
Yes! The biggest money can be made in a crisis. Putin even wagged his finger at the banks, like the government will not allow the banks to make super profits. Oh, yeah! Didn't specify the criteria...
confirmed... right.
90's! Inflation very many banks had good profits!
---
in the days of inflation crises - well - a well run bank is always in profit
Xadviser, good thoughts. From the category of those that bear the concentration of the thoughts of several intelligent people and once again make us think about the air we work with.
You have to have a point of reference to begin with, relative to anything.
>> Thank you.
The reference point can be anything. For example the beginning of day (hour, week or chosen arbitrarily)=t1. At that moment all distances between points are zero. It is necessary to find the relative position of the points in some coordinate system at time t2. All distances between all points at time t2 are known.
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Foreword.
Having crossed the threshold of the fourth decade, I want to share my observations about trading on Forex market. First of all, to protect those who have just fallen into the net of the Big Game from disappointing losses. I tried to present the material as simply and easily as possible without complicated stratagems.
In order to get started it is necessary to begin with the main thing:
- Understand what Forex is and how it is structured.
- We will try to understand if there is any pattern in the price movement that we may be able to exploit to our own advantage.
Let us try to answer these questions.
For a better understanding of the role of money and the modern monetary system I recommend to read the following films:
"Money is a Pyramid of Debt".
"Zeitgeist."
I want to emphasize at once that the following is purely my personal opinion, which may be erroneous in whole or in part. I have no need to prove and convince anyone in anything. If you find it useful - use, otherwise, everyone has their own way.
Part 1: The Game.
Why many people, when they get acquainted with Forex, rush to trade without finding out what the market is like from the inside? How do quotations appear and why do they move back and forth like young saigas? Why this way and not the other way?
In order to get an idea of how (to a certain extent) this works, I suggest you play a GAME.
Gather your acquaintances (those interested in Forex) and offer them a game, which, in my opinion, displays the processes occurring from within, and they are quite simple. To make the game more dynamic, we allow some simplifications, which do not affect the essence, but the desired "result" leads quickly. Preferably the number of participants is not quite small and odd, for example 9 or 11. Give out an equal amount of money from the "Millionaire" game to everyone (you can also give out real money, there will be more excitement and interest). You have no money, you are only the 'organiser' of the game. Draw a graph on a large sheet of paper in the form of a broken curve and offer the participants simple rules: predict the behaviour of the graph and whether the curve will go up or down. In doing so, accompany their prediction with a wager of one unit of available money.
After all the participants have placed their bets, you "draw" the movement of the exchange rate of the conditional currency pair. As you have already guessed, you are drawing it in the direction of the smaller number of people who have made predictions. If the participant "predicted" incorrectly you take away money from him in the amount of the bet, if correct you give him money in the amount of the bet, the "remainder" you keep.
After a while you and the other participants will discover "surprising" things. Your curve will make interesting patterns: triangles, double and triple tops and bottoms, there will be trends and flats, just like in "real" quotes.
The Organizer (who had no money) "suddenly" got a pile of notes, and someone has no notes at all. At this point, you can stop the game, or you can wait until there is NOTHING left.
One of Ostap Bender's 400 honest ways of taking money is shown in all its glory. Of course, we have made a lot of assumptions: equal size of bets, simultaneity of transactions, but the essence does not change. Now there is no question why the "market" always wins. In fact, the market has nothing to do with it. Participants themselves oppose each other, , while the market ("... only by justice Ostap Ibrahimych" (c) "Golden Calf") levels the resulting "misalignments", i.e. is in DYNAMIC EQUALITY (DR).
In order to predict the movement of a certain currency pair (VP) we need to know: the number of traders, the amount of money they have at their disposal, the time of use, their predicted direction.
All these variables are not available to us and therefore reliable forecasts are not possible. However, at the "top" you can see everything as clear as the palm of your hand. Now add to this "miraculous possibilities" of the organiser to draw money out of thin air (see the film "Money is a debt pyramid") and it becomes clear who will be the winner and who will be the loser in this game. After all, it turns out it's so easy to literally buy half of Australia in a month*.
*Any Japanese who signs a contract to buy a house for the Australian dollar at the beginning of August will have spent just over half of their own money in a couple of months! And that's nationwide!
Part 2. DYNAMIC EQUILIBRIUM
The first part has already given us this definition. What exactly is a dynamic equilibrium?
If you played the game proposed in Part I, you've substituted that your curve never moved horizontally, but only up or down in a zigzag pattern, although sometimes the GP values were in some "constant" bounds.
This is Dynamic Equilibrium. With a huge number of participants* and their different purposes, it is almost impossible to find the equilibrium point for the UP value, and so this value wanders without finding a place. In this case, the dynamic equilibrium is graphically displayed in the form of a graph similar to the impulse. (Fig. 1) see the full text
At the same time, the value of the price hasn't changed, although the price has "moved" up and down. The price constantly "wants" to find its equilibrium and symmetry (in the graphical representation), but since actions of the participants may not coincide with each other for some time, the symmetry can be broken. This is how TRENDS arise. (Figure 2) see full text
Market participants are all those directly or indirectly concerned with money, from ordinary citizens to international corporations and entire countries, in fact the whole world.