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Forex Market Deciphered: The Equilibrium Cross

  • #61
  • Jan 6, 2011 8:47pm Jan 6, 2011 8:47pm
Quoting marsgodlee

Will you be sharing how the equilibrium point calculation in details?


Most definitely. I am in the process of writing an example normal-form representation of market participant matrices, will be shared with all soon as I finish.
  • #62
  • Jan 6, 2011 9:23pm Jan 6, 2011 9:23pm
Quoting sophos
The purpose of this thread is to create an open invitation for traders who would like to discuss the original meaning of "Trading System": Quantitative method, as oppose to the indicator-piling and criterion selection nonsense. I wish this thread is gradually focusing on discussions such as game theory, stochastic method, probability/statistics etc, and of course the most important element in Forex trading: Fundamental Analysis, discussions about economy and markets.
I guess this is where I got confused as this thread is in the "Trading Systems" section where one would expect an actual trading system instead of theorising about what a trading system is.

Maybe this thread would be most suited to the "Interactive Trading" or "Trading Discussion" sections?

I'm still subscribed to this thread though, I find it interesting.
  • #63
  • Jan 6, 2011 10:39pm Jan 6, 2011 10:39pm
Big thanks to the forum moderator for moving the thread! I think this where it should belong to, it's the right place to attract the right people.
  • #64
  • Jan 7, 2011 5:08am Jan 7, 2011 5:08am
Thanks a million for the hardwork..

Happy New Year!!!
  • #65
  • Jan 7, 2011 5:50am Jan 7, 2011 5:50am
realy wonderful effort congradulations looking forwood to more

from Brian
  • #66
  • Jan 7, 2011 9:13am Jan 7, 2011 9:13am
Hey Sophos,

I just subscribed. Looking forward to future posts of yours.

What's your professional background, if I may ask ? Anything maths, computer science related, I'd assume.

Wish you much success.

I'm 5 years older than you...planning to let the dog off the leash tradingwise in the near future, as I belive that I have deciphered something,too !
  • #67
  • Jan 7, 2011 1:31pm Jan 7, 2011 1:31pm
Hmm...thread starter ignoring all criticism. Only providing very vague replies to specific questions regarding the entry/exit method and the potential future commercial prospects (neither a yay or a nay). Refuses to write more about the equilibrium cross but chose to name the thread Forex Market Deciphered: The Equilibrium Cross. Mentions authoritative names like Nash, Fourier and Ehlers to gain authority by virtue of 'relation'. Then goes on to say that he never intended this thread to be about the equilibrium cross, only the quantitative method, game theory, statistics and fundamental analysis which begs the question: why didn't he join one of the quant threads here or create a new one? Instead, he chose to create excitement by introducing his method, which he will not share (well, not for free anyway). Deciding whether to share his method is his call, but providing a peek into the method and then putting it back under the cloth is something that's not very nice and in fact is statistically more common among people who either want to fool you or take your money away (or both).
Quoting sophos
The purpose of this thread is to create an open invitation for traders who would like to discuss the original meaning of "Trading System": Quantitative method, as oppose to the indicator-piling and criterion selection nonsense. I wish this thread is gradually focusing on discussions such as game theory, stochastic method, probability/statistics etc, and of course the most important element in Forex trading: Fundamental Analysis, discussions about economy and markets.
He goes on to promise 'timely signals' of new equilibrium crosses, effectively paving the way for a potential signal service. Since he refuses to reply to questions about a commercial service, we really have no idea whether he is the real deal (ie. here to help us 'poor souls' who lose money in fx) or he is building a base of potential customers. Presumption of innocence is I think a very nice and useful principle so I'm going to go with that, but quite frankly I think this thread could do well with some disclosure of the thread originator's intents and purposes.
Quoting sophos
I will try my best to post the occurrence of equilibrium points that I personally trade on a timely basis, along with fundamental commentaries and thoughts, which again is an open invitation for discussion from live traders. I always welcome more sophisticated and more relevant discussions.
Sophos,
here's my challenge to you - get the spray can out and clean out this bad smell of doubts and suspicions by telling us whether or not this is going to be a commercial service so that FF can place you in the right subforum and so that the members here can maintain their trust in FF.

Quoting FXSurfer
Threads that are commercial or that are leading towards being so need to be in the appropriate section.

No disrespect to the thread starter but, if that's the direction that things are headed just say so. If your stuff's worth it then your business may well thrive in the commercial section.
Attached Image
If you don't risk, you don't ever have to lose.
  • #68
  • Edited 4:46pm Jan 7, 2011 4:24pm | Edited 4:46pm
Quoting Traderlarry
Hey Sophos,
What's your professional background, if I may ask ? Anything maths, computer science related, I'd assume.
Hi there!

Well I studied software engineering for 3 years but didn't bother to finish the whole degree, because during the 3rd year in uni I finally decided to switch to business and economics because at the time I was heavily involved in equity day trading, that's where I devoted all my passion to. But I managed to finish off all essential materials in software engineering and keep up to standard by myself(no exams to sit and no thesis to write FTW!). I am also a big fan of mathematics in general even though my training in math is more engineering oriented and far from being sufficient, that's why there are lots of reading and thinking to do.

Quoting bug
Sophos,
here's my challenge to you - get the spray can out and clean out this bad smell of doubts and suspicions by telling us whether or not this is going to be a commercial service so that FF can place you in the right subforum and so that the members here can maintain their trust in FF.
Hello!

How are you! Thank you for raising your point. I have no intention of putting anything into commercial use for retail traders. Actually I just took a look at the Commercial Forum(beta) section for the first time short while ago(always thought it was a section under construction for website partnership), and I didn't know people can actually sell stuff there. It's just amazing. As I said before, the purpose of this thread is for me to create this opportunity to help retail traders out their misery and invite people to the discussions on the original meaning of systematic trading.

I always thought this forum should be a place for peaceful discussion with live traders and never expected anything else. This thread will stay where it should belong to, under Trading Discussion would be the most appropriate. Well I sincerely hope this thread would maintain its right course, please keep all replies relevant and sophisticated.

Again thank you for your attention.
  • #69
  • Jan 7, 2011 4:59pm Jan 7, 2011 4:59pm
Quoting sophos
Hello!

How are you! Thank you for raising your point. I have no intention of putting anything into commercial use for retail traders. Actually I just took a look at the Commercial Forum(beta) section for the first time short while ago(always thought it was a section under construction for website partnership), and I didn't know people can actually sell stuff there. It's just amazing. As I said before, the purpose of this thread is for me to create this opportunity to help retail traders out their misery and invite people to the discussions on the...
Hi Sophos,
thanks for clearing that up. I hope you understand why I raised this question and why it's important to let others know of your motives. I do have one suggestion though - that you include in your first post your intended purpose of this thread from post #58 of this thread (if you take a look at my previous post here you will see the paragraph in question in the first quote box). I know the first post of this thread already says that you won't be handing out trade bots, but given the introduction and the contents of the following several posts it is not fully clear whether or not the exact method for defining the EC will be revealed. I think this would do your thread a world of good - it would bring more clarity to the readers in terms of what they are in for and it would scare away freebie hunters who tend to ask questions that are irrelevant and not sophisticated (freebie hunters, who can be recognized by their indicator and account balance greed tend to read the first few posts and then skip to the end, missing posts in between that contain all the disclosure info). Anyway, it's your call, just making a suggestion here.

Best of luck with the thread.
If you don't risk, you don't ever have to lose.
  • #70
  • Jan 7, 2011 5:16pm Jan 7, 2011 5:16pm
Hi bug

Thank you for your suggestion, really appreciated! This is my 1st thread ever and obviously I don't have many experiences, I'm just downright bad at managing it. I thought my intention was clearly stated in the Introduction, well looks like I have to fix it later.

Since you mentioned "freebie hunters", It would be interesting to see how they would respond to thread like this. I am always fascinating by trader's psychology such as what things they do and how they do it, what's their thinking process etc... I actually welcome rants from "freebie hunters", I will just try to ignore all of them and collect some 1st hand data off them for further study, things like what they say and why they say it, what's the rationale behind them etc... In Part Three I mentioned the use of semantics analysis, it would be great to see it being put to practical use here.

Cheers!
  • #71
  • Edited 6:25pm Jan 7, 2011 5:59pm | Edited 6:25pm
Quoting sophos
Hi bug
Since you mentioned "freebie hunters", It would be interesting to see how they would respond to thread like this. I am always fascinating by trader's psychology such as what things they do and how they do it, what's their thinking process etc... I actually welcome rants from "freebie hunters", I will just try to ignore all of them and collect some 1st hand data off them for further study, things like what they say and why they say it, what's the rationale behind them etc... In Part Three I mentioned the use of semantics analysis, it would...
FYI...these newbie traders make up such a tiny percentage of a percentage of the market that you time is better spent analyzing more macro fundamentals...

They just appear to be a large portion of the market because they'll all over these internet forums.

Actually to be honest I don't believe in fundamentals though. This is why. We acknowledge that price is impossible to predict, correct?

However doesn't a fundamental trader think like this: X rate has been raised so it should make it easier to get A, which should increase B, which should make the EUR should lose value? So isn't a fundamentalist always trying to predict price several weeks or months in advance? And didn't we just acknowledged that predicting price is impossible, right? Also all those "should" statements always raise huge red flags for me, as do the long series related but not dependent events. Trading fundmentals has always seemed like such a quackery to me...I much prefer to follow the simple trend thats happening right now, on the computer screen 15 inches in front of me.

The difference between fundamentals and technicals is this: fundamentals is like we blindfold our best friend, spin him around three times, and then tell him run to the other side of the yard. In fundamentals, you're trying to predict the stumbling route your friend will take and when he'll arrive at the other end of the yard. In technicals(if technicals are done right), instead we're following our friend, always just two steps behind him. Instead of predicting his whole route at the beginning, every two steps we're going to bet that our friend/the market will continue his same direction in the next two steps as in the last two. Since the forex market is a trending market, this is our edge in the technical world.



Okay, I'll get off my soapbox now.
  • #72
  • Edited 11:23am Jan 8, 2011 2:44am | Edited 11:23am
Quoting sophos
Since you mentioned "freebie hunters", It would be interesting to see how they would respond to thread like this./.../ In Part Three I mentioned the use of semantics analysis, it would be great to see it being put to practical use here.
One of the ugliest herds of freebie hunters can be seen ranting about on this thread: http://www.forexfactory.com/showthread.php?t=165948. It starts out well and then goes downhill from there very shortly. The purpose of the thread was to learn to use a few simple indicators, but it ended up with over 60 of them. There may just well be better examples, I'm bringing this up because I've read the whole thread and know what it contains. Have a peek at it if you want to know what those folks look like, but I don't think it does you any good to stick along there for much longer even if you manage to scrape a few pennies of them. Opportunity cost comes into play very heavily here.

Quoting aicccia
Actually to be honest I don't believe in fundamentals though. This is why. We acknowledge that price is impossible to predict, correct?
Maybe you just don't know how to use them on the correct timeframe? I don't trade fundamentals myself so I'm right there with you in terms of skill, but from what I've read, I'm more inclined to think that it is possible to trade using fundamentals. I don't know much about how Sophos does it, but I've read some interesting things on other people. Continued below..

Quoting aicccia
However doesn't a fundamental trader think like this: X rate has been raised so it should make it easier to get A, which should increase B, which should make the EUR should lose value? So isn't a fundamentalist always trying to predict price several weeks or months in advance? And didn't we just acknowledged that predicting price is impossible, right?
Pull up a chart of interest rate differential vs. AUDUSD.
OR pull up a graph that charts economic surprises (picturing whether economic releases during a specific time window were above or below expectations).
Examples provided below.

Quoting aicccia
I much prefer to follow the simple trend thats happening right now, on the computer screen 15 inches in front of me.
Right there with you mate, but I'm not smart and/or callous enough to dismiss the possibility of using fundamental analysis as a trading tool. By this I don't mean you expressed yourself in callous way, indeed your response was respectful. However, for this post to have any value to you, let me direct you to a book that introduces some of these concepts in little more detail than I have here (I don't want to steal space from Sophos). The book is Day Trading the Currency Market by Kathy Lien. I've made screenshots of some of the more important things to me from the book and I can upload it here as a zip/rar file if there is interest (the charts posted below are both from the book).
Attached Image(s) (click to enlarge)
Click to Enlarge Name: charting economic surprises.png Size: 175 KB
Click to Enlarge Name: Interest Rate Differentials 2.png Size: 123 KB
If you don't risk, you don't ever have to lose.
  • #73
  • Jan 8, 2011 3:06am Jan 8, 2011 3:06am
I wholeheartedly agree with aicccia. I only recently started becoming profitable trading the forex after more than a year of listening to advice from others and trying every new thing I saw in a thread somewhere. The only advice I took - from a very successful forex trader and one of the very few to actually share his methods, was to create your own way. Trade your personality and test and re-test your strategies. Make them your own. That's the only way to go. I'm a purely technical trader myself. That's not to say I don't believe in trading only the fundamentals but both types of trader can co-exist and still be profitable. When you've come up with your own system, you realize you don't need to listen to anyone anymore, but you can share ideas. I'm very interested in seeing how this thread develops. I'm interested in hearing about the Nash Equilibrium as it applies to trading.

BTW - I had a sell position in the AUD/USD that I closed just before NFP. Made a nice number of pips there on just technicals!
  • #74
  • Jan 8, 2011 7:26am Jan 8, 2011 7:26am
Hey Sophos,


must be a tough trading FX from Oz ! Living in Europe is great for me as I get to trade both the London and New York sessions...if I want to, lol.

Well well, excited about the maths you will be throwing at us in this thread, it was not really my forte in the past, hehe.

Have a good week end !
Quoting sophos
Hi there!




Well I studied software engineering for 3 years but didn't bother to...
  • #75
  • Jan 8, 2011 9:56am Jan 8, 2011 9:56am
Sophos!
I would like to subscribe to understand your point about your cross findings. Generally it looks like you reproduce monetary theory currently. It is good to understand dynamics behind market movement for everybody. Hope you are doing well . Good luck in trading
it's o'k to win ...
  • #76
  • Jan 8, 2011 1:46pm Jan 8, 2011 1:46pm
Quoting sophos
Hi bug

Since you mentioned "freebie hunters", It would be interesting to see how they would respond to thread like this. I am always fascinating by trader's psychology such as what things they do and how they do it, what's their thinking process etc... I actually welcome rants from "freebie hunters", I will just try to ignore all of them and collect some 1st hand data off them for further study, things like what they say and why they say it, what's the rationale behind them etc...
aicccia,
Sounds like Sophos is doing marketing research in order to sell a service to traders, as opposed to using retail traders to predict trends.
  • #77
  • Jan 8, 2011 5:21pm Jan 8, 2011 5:21pm
Your approach and concept are brilliant, the only thread that really interests me enough to read thoroughly, i do seem to arrive at similar entries and projection targets using a different "linear" method of analysis, though I'm sure my mind is automatically taking into consideration the fundamental side of things...
You name choice and place of residence can co-inside for an original heritage that is ancient?
I would like to pm you if it was possible.
Thank you for taking the time.
Biggest joker
  • #78
  • Edited 7:14pm Jan 9, 2011 5:18pm | Edited 7:14pm
Quoting aicccia
Actually to be honest I don't believe in fundamentals though. This is why. We acknowledge that price is impossible to predict, correct?

So isn't a fundamentalist always trying to predict price several weeks or months in advance? And didn't we just acknowledged that predicting price is impossible, right?
This is indeed the case not just for Forex trading but for any instruments. As I suggested in Part One where the long term trend is made up of relatively short term trading activities based trade-relevant time intervals, there is no effective way to utilize fundamental analysis to predict long term valuation, say 6 months from now, because the real valuation is meant to be unfolding in progressive time as information about it become more clearer and abundant. The Hypothesis of Rational Expectation tells us that what we expect about the valuation of an instrument is pretty close to what it really is hence appropriate price action can be acted upon it, but keep in mind that your expectation is based on current available information, only a small portion of them are future-inferring, only time will tell everything in the end.

Long term expectation can kill sometimes, it's very dangerous when traders base their trading on it or expect the market to behave in the same way. For example, the U.S interest rate was kept near 0 since the beginning of the GFC, and we don't see it going up any time soon at least next year, but traders constantly expect such as an event to happen, anything long term oriented action now is just a punt in the dark; More extreme cases such as Japan's interest rate, it's been kept superficially low since Japan was slaughtered by the Plaza Accord in the 80's, and for the past 20+ years, traders almost had this constant expectation about this interest-raising event to happen, and yet this long term expectation still hasn't eventuated. No matter what method you use for long term forecasting, the final result will bitterly disappoint you.......These cases tell us that long term forecasting is one thing, deploying trading strategy is another, traders must focus on what valuation is tradable at the moment or very near term, and adjust your strategy as you go along.

Quoting baron193
I do seem to arrive at similar entries and projection targets using a different "linear" method of analysis, though I'm sure my mind is automatically taking into consideration the fundamental side of things...
Hi there! You are welcomed to ask anything.

And yes, there are many linear methods exist, for example we can always use the signal operation to make it happen. Suppose the market input is s(in), and there is an operator O such that corresponds to a function of f(s) with time variable t, and the market output is s(out), so roughly O(f(s)t)= f(O(s)t). The O is a function box that is targeted to solve the first order derivative of f, and ultimately to find out the aggregated value over all t, just calculate the integral of all t......I know it can work on equity market with amazing result but not so much in Forex market, because of the following difficulties that I can think of:

1. Too many input variables and random correlations. It's a mammoth task to assemble the Forex market linearly using all these variable, personally I think it's not just a mathematical problem but more of a philosophical one regarding the selection of which input is actually meaningful and useful in modeling, things like how to overcome "information shock" in the market and solve strange correlations that very often defies normal market logic.

2. There is no central clearing system for Forex and volume is not published in real time, therefore it's hard to get reliable data on timely basis for the modeling. In the equilibrium point modeling, I tried to overcome this problem by construction a synthetic order book, collecting level 2 data and tick volumes from numerous sources. For each pair Country X/Country Y with their historic high(hh) and historic low(hl), the upper and lower bound of the order book are set as (hh)^e and (hl)^e, with time function t∈T where T is the trader-relevant time intervals(non-linear and stochastic). Naturally to find out the waning and waxing net expectation with their underlying price actions, you would expect to find out which price clusters are the most probable candidate to manifest the long/short "battle", and find out the price level prior to one of them is just about to be netted out and the other one is about to take hold of the opposite price action. Essentially this "battle" of long/short does have memory, hence it's not a telegraph process. Why? Let's consider an extreme case: suppose the exchange rate for Country X/Country Y was A 10 years ago, and it went up and down during this time and eventually settled on A again 10 year later, it could imply that the economic status for these two countries are on the same ratio again as 10 years ago, as if the exchange rate A remembers that previous event. Of course for equity market that's another story, the price might be memoryless, or might not be.....very hard to tell. Anyway I will get into more detailed discussion on this later.

Anyone want to add more?
  • #79
  • Jan 9, 2011 6:17pm Jan 9, 2011 6:17pm
Quoting bug
Hmm...thread starter ignoring all criticism. Only providing very vague replies to specific questions regarding the entry/exit method and the potential future commercial prospects.....
bug is going metacognitive again,

i havent read all posts & i might be completely wrong, but i think Equilibrium Cross is just a highfalutin word for something simple. if im correct, then nothing (new) has been 'deciphered' (as the thread title suggests).
i'll keep mum & just go on reading.

regardless of my perspective... regards to sophos
  • #80
  • Jan 9, 2011 8:13pm Jan 9, 2011 8:13pm
I trade levels, purely, any additional analysis to help me determined correct entry and or, reason to exit profitable trades before they become losses is what I'm looking for, unfortunately pure "linear" analysis is not enough, i agree to that.
That is all I'm interested in, i do know how to do TA quite well, and I'm also learning (still after 6 years) to give my trades more room and stay in longer.
I have also recognized the different phases of the market, times when TA works quite well and when it is in what i call "berko" mode.
To be weary of anyone on the internet giving away "secrets" is a given, but it doesn't mean attacking someone before proved guilty, at the end of the day if you're so gullible as to follow a strangers advice blindly you don't belong in this game or in any business venture.
Biggest joker
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