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self fulfilling prophecy trade

  • #1
  • First Post: Jan 10, 2007 7:38pm Jan 10, 2007 7:38pm
Is it possible that since MOST traders ( including institutional level traders) use technical to get in and out of a trade that basicaly the buying power of all of these traders will raise the market up, or selling will bring it down when the indicator bell rings?

I am not sure if fx works much the same way stocks work.

The more sellers bids are lifted making price go down, or more buyers make the price go up...not sure if fx is the same way...

If it is the same way, then do you think millions of technical traders will just add to the selling pressure or buy pressure lowering or raising the price when indicators make noizes?



pipology 101 student
Pipology 101 student
  • #2
  • Jan 11, 2007 2:41am Jan 11, 2007 2:41am
Quoting amanuel
Is it possible that since MOST traders ( including institutional level traders) use technical to get in and out of a trade that basicaly the buying power of all of these traders will raise the market up, or selling will bring it down when the indicator bell rings?

I am not sure if fx works much the same way stocks work.

The more sellers bids are lifted making price go down, or more buyers make the price go up...not sure if fx is the same way...

If it is the same way, then do you think millions of technical traders will just add to the selling pressure or buy pressure lowering or raising the price when indicators make noizes?



pipology 101 student
Barring the absence of any fundamental data/news, I believe the techies do have a degree of self-fulfilling prophecy. Fib levels are a big result of this. EVERYBODY uses fib levels it seems like and you can almost guarantee a pair will settle around a fib/level, turn around or do something at those points. However, there are still a lot fundamental traders out there and institutions/people that have to buy/sell for reasons other than technical analysis. Not all of the forex market is driven by speculation. Therefore, you get the degree of randomness to the price action and thus the unpredictability.

But don't disregard technical analysis either, it is a great tool.

Good luck

GirlFlyer
  • #3
  • Jan 11, 2007 12:24pm Jan 11, 2007 12:24pm
Statistically, it has been proven that 20-25% of all traders and/or investors in the financial markets use technical analysis, so I don't think what you are saying could be true by any mean...

Another very important point is that if all traders are technical traders they must all be using the same rules, the same concepts, the same strategy of entering & exiting the market and the same computers & even the same broker...Of course this can't simply happen, because I believe that there doesn't exist 2 traders who trade the same way exactly....


Thanks,

Nader
  • #4
  • Jan 11, 2007 2:26pm Jan 11, 2007 2:26pm
I went both ways in my trading path of almost 10 years. First fundamental and then technical. What I find was that there are some sort of a link between the two. People act upon information and most definitely on their interpretation of that information. It is not so much the info as the interpretation thereof that brings action according to the interpretation. I found that certain technical indicators are actually based upon this interpretation of info. Moving averages are just smoothing out the actions or movements based upon the interpretation of the information. The shorter the period the most resent info are carrying the weight and the longer the period the more and broader info are involved. That is why I don't trade crossovers of moving averages but rather studied the movement around this moving averages. To me I don't see the price or value of a currency but to me it is the actions of people based upon their interpretation of information they have. Thats why one are bying and one are celling at he same time. Different strategies also play a roll. To study fundamentals surely does have its place but for me I don't have the time nor the resources to do it. And then I will have to predetermine how are the people going to interpret it to try and predict when will I enter en where will I exit a trade.I will rather watch the severity of the fundamentals reflected in the currency movements(actions of the people based upon their interpretation of the info) and base my involvement on that. I am using two short term moving averages, one medium term and one long term moving average as guides as to the direction of movement. Along this different paths of actions I make my decisions. I don't think that technical people are ruling the movements. Fibonacci movements are also based upon human(nature) behaviour.
To me I think that technical indicators are just trying to predict human behaviour based upon info.

I give much more attention to the study of the motion of the market around these moving averages. It gives me some insight into fundamentals.
  • #5
  • Jan 11, 2007 10:19pm Jan 11, 2007 10:19pm
Quoting amanuel
Is it possible that since MOST traders ( including institutional level traders) use technical to get in and out of a trade that basicaly the buying power of all of these traders will raise the market up, or selling will bring it down when the indicator bell rings?

I am not sure if fx works much the same way stocks work.

The more sellers bids are lifted making price go down, or more buyers make the price go up...not sure if fx is the same way...

If it is the same way, then do you think millions of technical traders will just add to the selling pressure or buy pressure lowering or raising the price when indicators make noizes?



pipology 101 student
No, traders are not controlling Quotations.
All price quotes come from dealers or Banks through Information systems (like Reuters), dealers get their quotes from MAJOR BANKS,
Major banks control where market is going to move. They are real market makers with their own rules.
it's o'k to win ...
  • #6
  • Jan 14, 2007 1:04pm Jan 14, 2007 1:04pm
Quoting zenseven
No, traders are not controlling Quotations.
All price quotes come from dealers or Banks through Information systems (like Reuters), dealers get their quotes from MAJOR BANKS,
Major banks control where market is going to move. They are real market makers with their own rules.

I see..

Then as others have replied also, based on what the bank quotes the mass traders then ofcourse follow what the brokers quote with few pip differentials and then these traders would react to it.

This new price quote would cause the traders screen to change its patterns (MA, and others ).
Now, based on the information displayed on the screen (MA, and alike), these traders are anticipated to react in certain way.

And since most traders will for example try to follow crossses, one would anticipate a self fulfiling prophecy i.e, what most traders would realy do ( sell on cross down, or up or what ever)

I think concentratating on human psycology, and reaction to price of traders (most traders and speculators), will increase the odds of the bet in a trade.


IF NOT

If it is only the banks and big big boys that can move the market, and not the traders- i.e not like stocks where bids and offers are affected directly by the mass, then learning reactions of the mass traders to price will not help enhance a trade. Because it does not matter what the mass thinks ( mass does not include banks and gov), and only matters what the banks and gov will do.

Interesting..

I dono if I am making sense.
Pipology 101 student
  • #7
  • Jan 14, 2007 1:11pm Jan 14, 2007 1:11pm
I think one needs to concentrate on what banks will do uppon finding out when certain technicals are met or not met, and when certain fundumentals are met or not met.

Understanding what moves price in fx is the key
Pipology 101 student
  • #8
  • Jan 14, 2007 1:18pm Jan 14, 2007 1:18pm
Quoting GirlFlyer
Barring the absence of any fundamental data/news, I believe the techies do have a degree of self-fulfilling prophecy. Fib levels are a big result of this. EVERYBODY uses fib levels it seems like and you can almost guarantee a pair will settle around a fib/level, turn around or do something at those points. However, there are still a lot fundamental traders out there and institutions/people that have to buy/sell for reasons other than technical analysis. Not all of the forex market is driven by speculation. Therefore, you get the degree of randomness to the price action and thus the unpredictability.

But don't disregard technical analysis either, it is a great tool.

Good luck

GirlFlyer

I see, thank you for your answer.

And thank you for your contribution to FF
Pipology 101 student
  • #9
  • Jan 14, 2007 1:21pm Jan 14, 2007 1:21pm
Quoting narafa
Statistically, it has been proven that 20-25% of all traders and/or investors in the financial markets use technical analysis, so I don't think what you are saying could be true by any mean...

Another very important point is that if all traders are technical traders they must all be using the same rules, the same concepts, the same strategy of entering & exiting the market and the same computers & even the same broker...Of course this can't simply happen, because I believe that there doesn't exist 2 traders who trade the same way exactly....


Thanks,

Nader

you are right, let a lone who use the same combination of indicators at a given time. This reduces the billion into thousands of little group with different set of strategies and that won't affect price move since every one is not doing the same thing at the same time to affect price.

Makes sense.
Pipology 101 student
  • #10
  • Jan 14, 2007 1:33pm Jan 14, 2007 1:33pm
This thread did not contain a system, so I moved it from the Trading Systems forum to the Forex Discussion forum.

Dial
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  • #11
  • Jan 15, 2007 1:25am Jan 15, 2007 1:25am
Quoting amanuel
I see..

Then as others have replied also, based on what the bank quotes the mass traders then ofcourse follow what the brokers quote with few pip differentials and then these traders would react to it.

This new price quote would cause the traders screen to change its patterns (MA, and others ).
Now, based on the information displayed on the screen (MA, and alike), these traders are anticipated to react in certain way.

And since most traders will for example try to follow crossses, one would anticipate a self fulfiling prophecy i.e, what most traders would realy do ( sell on cross down, or up or what ever)

I think concentratating on human psycology, and reaction to price of traders (most traders and speculators), will increase the odds of the bet in a trade.


IF NOT

If it is only the banks and big big boys that can move the market, and not the traders- i.e not like stocks where bids and offers are affected directly by the mass, then learning reactions of the mass traders to price will not help enhance a trade. Because it does not matter what the mass thinks ( mass does not include banks and gov), and only matters what the banks and gov will do.

Interesting..

I dono if I am making sense.
Yep, No matter what the mass thinks... Matter what Gov and Banks think.
They cannot afford to lose ever. Only one way to escape "Soros Big Game with pound" to take over control.
it's o'k to win ...
  • #12
  • Jan 15, 2007 3:16am Jan 15, 2007 3:16am
Since most retail brokers are obligated to hedge their clients' positions, doesn't that mean that retail traders are unable to actually impact the market, since effectively their trades have no impact on overall supply or demand?

As for the self-fulfilling prophecy, narafa already said what I had to say. Every trader would need to be using very similar methods in order to impact the market in the way you're describing. You would also have to remove the market participants who weren't trading or investing for a profit, such as companies who need to exchange currency for foreign transactions. This has happened with some indicators and methods, but not ALL of technical analysis.
  • #13
  • Jan 15, 2007 10:24am Jan 15, 2007 10:24am
For every trader using a moving average to get in, there is another trader using fibs to get out. Well maybe there isn't a 1 for 1 ratio for any given techniques but there can't be a selffulfilling prohpecy about every kind of way to enter or exit the market at any given time. Just think about how many traders use a sma of 8, but some on a micro, short term, intermediate or long term level. Each is a different entry or exit point.

Yes the crowd does move as a herd, but there are all kinds of reason why.
  • #14
  • Last Post: Jan 15, 2007 1:38pm Jan 15, 2007 1:38pm
this has been a really cool post to read. thanks for all you thoughts and opinions guys.
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