FX Markets Core Influences

After reading the threads by others. What doesn't exist on FF is much for transparency. It seems to be elusive to most. It's not easy to get to but it's simple to use. I joined in and participated in a couple threads of EURUSD and Order Flow but those creators were mind-locked into their own beliefs about market dynamics and market state, trading conditions, strategy development and so much more it's not even funny.

While I appreciate the energy people put into learning how to trade, just like I have, I'd hope that they'd dissect everything and get to the core of how, why and when. In doing so, your risk is limited to negligible amounts, your rewards become elementary, your insight sought after and the ability to generate returns becomes second nature.

As I start this controversial thread be warned - I hold back nothing and I'm not apologetic to any of it. A 3.5 decades behind the charts, platforms, funds etc and I'm more burned out on the garbage I've seen people using. What's more infuriating is that they actually teach it. Creating risk models (gambling) victims rather than teaching them how to trade well.

So what is the difference and how can one learn to trade well? Easy. Follow value. Determine Value, Calculate Value, Understand Value and Use Value. Value is the very force that triggers banks to effect 97% of all their trading volume in one strategy or another. Attacking value. Free Yield. Yet none of that is seen on the charts. The charts are irrelevant and toxic. The sole purpose of a chart is to give representation of price.

Price is the cost, the entry mechanism, the required payment. Price is not the investment vehicle or the instrument being traded. Think about that for a minute. I'm certain that many will call foul. That's where it starts to become sickening. Retail focuses on risk models forever analyzing the charts, making attempts at predicting their movement, using higher time frames to their own demise but never considering that the charts are simply price, the instrument is the sovereign currency. But never once have you actually considered the value of the currency and how auction markets valuation process leads prices at every turn.

Let's break it down.

Capital Flows.

The world's economies are driven by capital flows. Markets are driven by capital flows. Banks attacking opportunities for free yield trigger capital flows.
Trading itself is not a long term objective. At it's most basic premise, it's taking advantage of short term changes in price movement. So analyze value. Value tells you long before the price movement where 'capital flows' attack opportunities for risk averse returns.

Charts are toxic.

You've spent months, weeks and years trying to predict chart patterns, time the market or build strategy on individual charts.

Yet, you've ignored the facts that currency values that lead rates are dependent upon values of other currencies and very interconnected. Yet most traders never analyze the sovereign currencies and entirely fail in accepting the fact that it's all a connected web where YOU are not entitled to the same level of market transparency as the banks who hold custody of your trading capital.

As I said earlier. Charts are just representative of price. The cost and mechanism of entry. Free yield (in a bankers view) doesn't matter where the charts show trend, it's only relevant when considering the premium/discount price is to value. The yellow (discount) shows the value is -.57 pips lower than the price itself. That is an enticement for banks to sell the Rate knowing the value is lower. This is an attack on price to capture yield.

Markets are Dynamic.

Trading a static approach to random, abstract or assumed properties of the market is a failure before you start. As previously stated and please, I invite you to do the work yourself. Values of currencies are dependent upon cross border capital flow and the resulting pressure on the pair itself. That pressure is dissected by the differentials to capital flow.

Step away from this and you're trading a random abstract risk model trying to counter trade common sense and values driving the data itself. That's a painful existence.

Attached is the valuation of incoming capital flow into the USD while the EURO is being depleted. Granular transparency providing continued pressure on the EURUSD selling pressure.

Now take a look at the first three images in this thread.

Cross Border Capital Flows being the 1st. It drives values, values are then seen on the second image, the (chart) as rates respond and are attacked by selling pressure. The third Image (just above this reply) is all of that happening at the same time. It's a coordinated sequence of events in a transparent view.

Points of Focus

 

1. Prices are taken advantage of when there is freely available yield.
2. Charts are almost entirely irrelevant in determining premium/discount. Only price to value is considered.
3. Price action is irrelevant, what remains statistically helpful but not critical are the most recent high or low when those highs or lows are created by transitions in value. ( attached image to identify those conditions )
4. The FX Market is global. Ignore the global nature and eliminate it from your analysis and you're restricting profitable opportunities to just 40% of all your trades.
5. Price is historical, auction process derives value, that creates a vacuum of pressure that pulls price all day long.
6. Learning to trade proficiently well takes three weeks, two of those focused on forgetting the concepts of noise.
7. FX Market is by far the largest market, intentionally structured to be opaque. It's also the most efficient. Use that efficiency in every aspect, you'll soon forget the concepts of frauds who have promoted them.
8. EVERYTHING starts on the lower time frames (30 seconds to 1 minute) This is where banks take advantage of any mis-pricing or consumes free yield.
9. Trading is taking advantage of aggression of volatility. Know how banks attack opportunity and you'll never wonder where those wild price spikes come from.

A Weekend Look Back.

Let's put history into context. What constitutes history?

At an auction, be it art, antiques or financial. Prices are bid higher due to value. Without value the auctioneer has to lower the starting offer until there's someone that expresses interest. Until there's interest there's no agreement to price. Without agreement to price, value is undetermined. The process of price discovery is important here within FX. Price discovery is both recognition that price may be valid or out of line with value. Triangular parity helps us determine if an instrument is fairly priced through cross rates. The underlying value though isn't a check on efficiency, it's a foundational point of discovery to which then prices can be validated or taken advantage of through arbitrage.

This tells us price agreement is historical to value determination.
The auction process determines value, order flow is recognition of that value and the resulting aggression attacking differentials in value to price.
Support and Resistance - if examined in a price structure approach is historical and inclusive of intentional latency or lag.
Volume is historical as it's only triggered when value has been determined and aggression on price triggers aggression of volume within cumulative flow. This is the same thing as order flow. They are not technically different in substance, only in the quantity used to attack price in expectation of movement.

Breaking Strategies Down - In reality there are only a few styles of strategy models at the core.

Risk Models - These are price structure based, used exclusively by retail traders who's activity is a cumulative 3% of the overall market.

Quantitative Models - Some hybrid of retail to institutional here with the advent of recent programming environments and Ai platforms which in my view are substantially worthless without the granular understanding. But Quantitative Models attempt primarily to extract returns by exploitation of subtle lags in efficiency or cross market arbitrage methodologies and approaches that study level 2 data - mostly unavailable in FX unless you're using aggregation of streams, pools and ECN's.
Quantitative models can generate consistent returns but statistically are in the lower yields to that of Value Models.

Value Models - This is where you'll see 97% of trading volumes being triggered by institutions. They put little credence into the charts or static predictions. They are fully aware of currency value, after all, that is the investment vehicle. Never have I ever heard professional traders claim to put their position into EURUSD. The transaction goes through EURUSD but the destination currency is always the objective.

This brings up a significant difference between retail platforms and institutional access points. Retail is forced to hold positions in the rates, while institutional participants can net out and hold positions in currencies irrelevant of rate. Entering Buy orders on Currenex for 1.15 M EUR at USD 1.15564 can be settled on settlement date or cross netted by an opposing close or counter trade on EBS by selling 1.15M EURCHF. The resulting settlements would put the trader Short USD and Long CHF. Those are the destination currencies, the exchange rates are just the cost, the price, the mechanism of entry.

Depth and Volume

Both are extremely misunderstood, misapplied and conjured up to something essentially irrelevant by most.

The difference in real volumes takes into consideration the net distribution of flow. (the value counterbalanced argument) While volume profiles present a friendly but ultimately worthless image, market depth provides you a visual tool that is impossible to read and does not consider the sovereign state of currencies at all. It's almost that no foreign exchange exists globally except for the charts traders focus on. That's not how it works. Capital flow is sovereign and movement from USD into EUR is net of all transactions as much as net flows of other currencies into the EUR are relevant. The charts only provide individual chart based components of the macro picture.

No Static Dreams, no concepts of movement, data drives it all.

While BookMap provides historical events, it ignores the most important aspect driving prices. Value.

Leading Sovereign Value =
Global Capital Flow Awareness =
Aggregated Volume Analysis =
Leading Dynamic Model =
Cross Flow of Capital =
Second to None =
Statistical Resiliency =
Price Action Dependency =
Abstract Theory =
Isolation to Pair =