Diversified Trend Trading Approach

do you use this analysis? in what case the best we use this hypothesis? because i found too many hypothesis, and rarely seems suits the market.

Hi E :-)

What I have experienced over time is that there is no doubt that markets are efficient and becoming ever more so. That is the whole point to a market. To create an efficient marketplace where buyers and sellers can transact at 'fair value'. Inefficient markets are like barter economies or new market opportunities such as crypto-currencies, new issues, new indices etc. where initial inefficiencies are slowly whittled away by more and more participants interacting.

What this means particularly for well established liquid currency markets are that non-efficient moments when 'real' opportunities can be taken by traders as opposed to random luck or ability to exploit a single market condition are fleeting in nature and seldom long lasting.

You find that this ultimately impacts the length of time that you can survive in this market as the element of effective randomness of outcomes takes a long time to play out when non-leveraged....but a quick time to play out when leveraged.

Unless you can find an enduring edge in this market with a particular technique that can survive over an extended array of different market conditions (or data set) this therefore forces you to continuously adapt to altering market conditions and to find new ways to harvest the occasional non-efficient anomaly that comes your way. This puts severe pressure on the trader to not only be prepared to adapt to new techniques....but also to find new techniques with an actual edge.

As markets become more efficient, your ability to find an actual edge in the game decreases. You may be fooled into thinking that you have an edge in a particular 'fairly stable' market condition, but as soon as a disruption occurs in those conditions and a new market condition is generated...you realise quickly that your solution no longer works. You therefore did not have an actual edge in the first place.

Accepting that the market is efficient most of the time does two things to your trading psychology. It forces you away from even caring about a single trade to one of simply caring about the next few thousand trades and...... to be able to do this you need to therefore seriously reduce your return expectations and particularly your leverage and seriously address your risk management.

These fleeting inefficient times means that you need to be in the game to participate in them....but to be in this position you must be a survivor. The only real way to achieve this is to protect your capital base at all times the market is efficient so that you are available when the unpredictable non-efficient anomaly comes your way.

i like your opinion Copernicus. In that right time and huge pressure, many trader got margin call. If they have got twice they will think "Forex is just not my world, and its not working at all".

Yep E. It is a really hard game....and getting harder particularly with the swarms of algo's now infecting the marketplace.

The followup seminar the next day....for those interested in interrogating how we think :-)

I can't get enough of Bohm :-)

Part 1: Towards Wholeness.

Part 2: Parts of a Whole

Order in the Chaos - The Quasi-crystal

In any complex system we inevitably come across the predominance of some patterns or relationships over others. For example we talk a lot in this forum about about the 'fractal' nature of markets or the dominance of certain features such as the Golden ratio or Fibonacci sequence. Now is this just BS for the tea leaf readers or is there something deeper in the significance in certain features of the data.

A gifted mathematician from this forum sent me a video (he knew I would like :-)) the other day about the tendency of all river systems in a depositional environment (such as a floodplain) to adopt very strict rules in the way they meander. In fact this is evident in all rivers across the world. When unimpeded by structural bedrock, they simply do not flow in a straight line towards the river mouth. They all adopt a meandering pattern by virtue of a feature related to one side of the river which is faster flowing eroding into the floodplain while the other side of the river with corresponding slower flow depositing sediment at it's edge. This is what causes the meander. The torque associated with the variable flow of the river with it's passage on top of the geomorphology. This relationship is a mathematical one and imparts structural rules into how the river flows.....and this is repeated across all river systems in the world.



Now the local natives may have embedded some mystical quality into the meandering feature of the river system...imbuing the river with 'serpent-like' qualities but the physicists amongst us would nod their head and say....that's a very rational explanation.

Now in the same way...we need to be careful about treating concepts such as the Golden ratio...or the fibonnaci sequence as simply 'woo science'....because with the emergence of a concept of quasi-crystals we start seeing the why in the significance of data relationships such as the Golden Ratio.

Until the emergence of quasicrystals into the scientific lexicon...we only had crystals.

Basically, a quasicrystal is a crystalline structure that breaks the periodicity (meaning it does not have translational symmetry, or the ability to shift the crystal one unit cell without changing the pattern) of a normal crystal for an ordered, yet aperiodic arrangement. This means that quasicrystalline patterns will fill all available space, but in such a way that the pattern of its atomic arrangement never repeats.

Since their discovery in the 1960's thousands of examples have been found in nature.....but how and why?

We are all familiar with the properties of a crystal. Most crystals are composed of a three-dimensional arrangement of atoms that repeat in an orderly pattern. Depending on their chemical composition, they have different symmetries. For example, atoms arranged in repeating cubes have fourfold symmetry. Atoms arranged as equilateral triangles have threefold symmetries. But quasicrystals behave differently than other crystals. They have an orderly pattern that includes pentagons, fivefold shapes, but unlike other crystals, the pattern never repeats itself exactly.

Now one of the features of quasicrystals is that there are vastly many more quasicrystal shapes than crystal shapes.....why?

We can create quasicrystals by projecting a crytalline shape in 3D onto a 2D surface. The shadows of the crystal on the 2D surface are not periodic in nature....but they do hold certain relationships when the 3D crystal is rotated. The result is a cross-hatched sequence of shadows on the 2D surface that are not periodic but are definitely orderly patterns that 'hold' onto specific properties. The rules of the 3D geometry are transcribed onto the lower dimensional surface. The 2D representations have multi-variate 2D rules that they now have to obey......they have co-dependent relationships (features of co-integration) built into their 2D arrangement.



In other words, the 2D shadows cannot simply be geometrically arranged in 'any way' as chaos would suggest....but now must be configured in 'very specific ways' geometrically defined by the higher order symmetry. Now nature following the 'principle of least resistance' is bound to follow the simplest way to geometrically arrange itself....but some ways are forbidden by the laws of the universe...whereas other geometrical arrangements become self-evident.

Now the natural features of fractals also hold this curious feature. They are the simplest way for a geometric structure to unfold with 'specific rules applied' that govern their geometry. Nature always chooses the simplest path and it does this by repetition of these rules again and again and again. They obey the 'Laws of the greater system' or are restricted by these Laws in the way they can unfold....but they use these laws to govern what is possible and what is not. As a result, some patterns or relationships start to dominate over others. This is referred to as self-regulation by the lesser system....but the reality is that it is the wider system that is actually regulating what are the possible configurable 'states' in the sub-system.

.....but you do not need to step into a higher dimensional geometry to produce these quasicrystalline shapes or fractal geometries. You just need to project the rules of a global system into the space of a nested system to achieve this. What you are doing here is projecting multi-variate conditions of a global geometry (such as the laws of our universe) into the sub-space of a nested system (such as a living system.......a financial market......a cosmological cluster etc etc etc). What this projection does...is that it gives credence to bias in the underlying system and creates a 'dominant' feature in that nested sub-system....which has more 'weight' than any other random shape.

The reason that we get order from the chaos is because when dealing with a chaotic subsystem that is contained within a greater system such as our very ordered universe....the rules of the order from the greater system start self-organizing the chaos in the sub-system by a principle of simply 'biasing the data set' of the information contained in the sub-system.

When you get a persistent feature arising throughout a complex system such as a certain mathematical ratio or relationship which appears more frequent than a random happenstance.....there is inevitably a 'real' reason for it's occurrence. Not a 'woo' reason....but a real physical reason. For example in euclidean space no matter what size of triangle I geometrically describe, the 3 angles of the triangle always equals 180 degrees. This is not a tea leaf reading event of circumstance...but a real aspect of a particular geometrical property. Because this planet approximates euclidean space at the small scale, the triangle I draw in the sand at my beach in Australia will have that same relationship that a large triangle drawn in Europe will have....or Jupiter....or any very large planetary system where on the small scale the surface is effectively flat.

You will therefore see this feature with any small scale triangle you observe on this planet. In fact the reason why that triangle at very large scales does not demonstrate this relationship, but rather the angles of the triangle drawn across the horizon is greater than 180 degrees....is actually a mathematical proof for the earth being round and not flat.

So don't be too hasty to draw definitive conclusions regarding recurring features of a system such as a Golden ratio or Fibonacci sequence as there is a very strong likelihood that there is a very 'sane' reason for it's occurrence that just may be hidden in plain sight.

Is the Golden ratio 'woo science'...or are we still too naive to really understand it?

Make sure that you are not blind-sided by reductionist logic and can still step back and absorb the big picture. What you will find in doing so and in looking hard enough is that it is all 'systems within systems' without end. It is all about processes guys and the rules in which each of these systems play out....not the arbitrary ephemeral patterns that we may call in our naive restricted viewpoint as the 'things'.

Cheers

C

Man this is the best stuff i have ever read on ff

Cheers 3. The 'lightbulb moments of awareness' happen to all of us so long as we do not fall into the trap of being blinded by the shackles of bias or dogma. Science helps in leading the way here using the tool of mathematics to ensure consistency....but critical thinking from the earliest philosophers were able to achieve this many years ago......it just lacked the empirical proofs to turn the philosophy of 'woo' into science. Back then we had no idea ...which philosophy was right. :-)

What I do worry about is that 'critical thinking' seems to have lost its way as we modernize and specialize. We have become such specialists and so departed now from our ability to understand the 'big picture'. In the words of the great physicist David Bohm....we are becoming more and more incoherent and this is translating into the way we are poisoning this beautiful planet.....without even realising it.

I think the real problem is modernizing. While modernizing is a good thing in general, it has a very big drawback. Whenever i look at my mates(im relatively young, only 24 years old) i see mostly zombies. All they care for is their hair, their phones and their brains focus on unimportant things all the time. I cant even have a good conversation with the people around my age. They are following the wrong trend...

Alan Watts - The Greatest Skill of All

Thanks for this referral Pip. I spent the weekend getting stuck into Capra's new book.

Below is an overview of what is discussed. It certainly pays to keep up with where science is currently at....otherwise you quickly fall back into classic dogma associated with holding on too firmly to outdated models taught at school or at university that can blindfold you and leave you with narrow opinion.

Momentum trading and trend trading explained in this vid.

And who knows where the wind blows.

You're welcome C. It appears to be the culmination of his life's work. Amazing stuff!

The Scientific Method & Investment Management



The mathematician who cracked Wall Street | Jim Simons

It's been quiet here lately. Time to ramp it up and create some noise :-)

How about such noise?